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FinanceDude · 01-13-2009, 08:11 AM

Quote:

Originally Posted by LOL!

I did not look at the funds since everyone pretty much said, "Holy Crapola!"

But I wanted to write that the OP is probably not paying any front-end loads because the loads are likely waived. And the numerous funds is a good way for Fidelity to have some winners each year.

This makes portfolio reviews easier, "Well, you were in the number one fund in bunny futures this year", while ignoring the fact that you were in the worst fund for large cap stocks. Then the next year, "Well, you were in the number one fund in real estate in third world countries fund", while ignoring that your bond funds lost 10%. Etc.

Basically they are dazzling you.

And you should not compare their results to some play portfolio. Instead, compare it over the long term to a serious asset allocation of index funds that is properly tax-managed.

I should start a thread on the lunacy of "wrap accounts".........

REWahoo · 01-13-2009, 08:12 AM

Quote:

Originally Posted by FinanceDude

I should start a thread on the lunacy of "wrap accounts".........

Let me guess - you'd title the thread "The rap on wrap accounts"...

FinanceDude · 01-13-2009, 08:23 AM

Quote:

Originally Posted by REWahoo

Let me guess - you'd title the thread "The rap on wrap accounts"...

It would be appropriate. There's a lot of shady stuff going on with those type of accounts......

Grep · 01-13-2009, 02:29 PM

Quote:

Originally Posted by Kabekew

And what funds might those be? (Not being sarcastic, I'm new here! Vanguard Wellesley?)

If you want to retire early, you need to do two things: You need to preserve your capital for the long run, and you need current income to live off of.

To preserve your income for the long run you need to be reasonably conservative, yet you need to protect yourself against long term inflation. That means some reasonable mix (say in the 40-60% range) of stocks.

You also need income, which usually means bonds of some sort, or a tilt towards higher dividend stocks.

A fund like Wellesley is just the sort of thing that accomplishes both. It's oriented towards income, and currently throws off something of order 5%. It contains ~40% stocks and should preserve capital even in the face of ordinary levels of inflation.

Wellesley is an actively managed fund that is not as vastly diversified as say Vanguard's Total Stock Market (or Total World) funds. However, it's one of the least expensive actively managed funds out there, and one of the best. Some people split their money 50-50 between Wellesly and Wellington (which is 60% stocks). You could do worse than Wellesley or some combination.

As an alternative, you can choose one of Vanguards "Target Retirement" funds. Pick the one that currently has roughly the percentage of stocks you want (e.g., 60%).

Another approach is some sort of highly diversified yet low cost combination of a few funds. Here's just one simple example, which is totally pulled from the air and is not a recommendation:

First, a year in cash and a 5-7 year CD ladder of basic expense needs.

Then, with what's left (the bulk of your money by far),

Say 50% stocks (in funds or ETF versions):

20% Vanguard Total Stock Market fund (matches the market)
10% Vanguard Small Cap Value (small and value risk premiums)
5% Vanguard Value fund (higher dividends these days)
15% Vanguard's Total foreign stock market.
Add a dash of REIT's if you are feeling frisky.

Then, with what's left:

50% Vanguard's Total Bond fund.

Alternatively, you could break the bond fund down into say thirds or quarters in GNMA, short-term corporate, TIPS and/or your state's tax free fund (if one exists).

I doubt the above would cost you more than say 0.15% per year, especially as you would be in lower cost Admiral shares more often than not. This is probably at least 10 times less than what you are paying now. Remember that if Fidelity is keeping 1.5% of your money every year, that's 1/2 of your 3% per year withdrawal!!!

It's not that hard.

Kabekew · 01-13-2009, 08:10 PM

Quote:

Originally Posted by Gotadimple

(1) For the income it generates for the firm. Even if there is no load to buy the fund, Fidelity is earning a commission from the mutual fund company for selling the OP the fund.
(2) To assure the client they have placed his/her investment with a highly regarding investment company.

I'd think Fidelity's monied customers are probably money-savvy and will readily compare them to the competition and DIY index funds. So it's in their ultimate interest to hire the best people to figure out the best way to get the best returns for their clients, not just sucker people in with some shtick.

And so their best and brightest came up with a scheme like this -- a fund of 40-some funds. Could they maybe be right? Is this maybe be the best way to invest, currently? Diversify your diversified funds? Why else would they do something like that, knowing everybody would be watching them and asking on message boards about it?

haha · 01-13-2009, 08:20 PM

Quote:

Originally Posted by Kabekew

I'd think Fidelity's monied customers are probably money-savvy and will readily compare them to the competition and DIY index funds. So it's in their ultimate interest to hire the best people to figure out the best way to get the best returns for their clients, not just sucker people in with some shtick.

And so their best and brightest came up with a scheme like this -- a fund of 40-some funds. Could they maybe be right? Is this maybe be the best way to invest, currently? Diversify your diversified funds? Why else would they do something like that, knowing everybody would be watching them and asking on message boards about it?

I'd say yes, you are probably onto something. Who cares about expenses when returns will be huge?

Ha

samclem · 01-13-2009, 09:00 PM

Quote:

Originally Posted by Kabekew

I'd think Fidelity's monied customers are probably money-savvy and will readily compare them to the competition and DIY index funds.

Some other things to consider:

- Having money and knowing how to make money work for you are often very different things. Stories abound about the ill-advised investments doctors make, but I don't believe medical professionals are really any more "challenged" in this area than lawyers, managers, or salesmen.
- How will the customers know if the results they get are "good?" These are people who have elected to pay somebody else to give them advice--against which basket of alternative investments will they grade their returns? And when their adviser provides an explanation for any underperformance (don't expect he'll blame the expenses and fees), will these investors be prepared to spot a bogus explanation? And remember, when you look back, it will have been over only one time period, an impossibly narrow sample for making a determination of whether the picks you've been provided were truly good, truly lucky, truly bad, or truly unlucky.

Quote:

Originally Posted by Kabekew

So it's in their ultimate interest to hire the best people to figure out the best way to get the best returns for their clients, not just sucker people in with some shtick.

And so their best and brightest came up with a scheme like this -- a fund of 40-some funds. Could they maybe be right? Is this maybe be the best way to invest, currently? Diversify your diversified funds? Why else would they do something like that, knowing everybody would be watching them and asking on message boards about it?

It's not clear whether you believe that these wizards at Fidelity are able to successfully time the market and provide their customers tips that will let them get in and out of sectors before the market moves. Or, if instead, you believe that they can't make these predictions, but they can help you design a diversified portfolio that will perform as well as possible whichever way the market moves. If it is the former, you should realize that this ability to time the market would be worth billions of dollars, and the guys who perfected it would be wealthy in short order and would certainly not be working at Fidelity and selling their secrets for a fee of 1%. If you believe the later, then all I can say is that you can do it easily yourself and not give up the $8-16K per year in fees and expenses that you will be paying under the present arrangement.

FIREd · 01-13-2009, 09:50 PM

Well, I ran an X-ray on your portfolio (yeah, I know, I have too much time on my hands).

I found some interesting things:
1) do you know what your top stock holdings are?
JP Morgan. Actually 14 out of your 42 funds own that stock.
Bank of America owned by 9 funds out of your 42 funds.
Microsoft owned by 12 out of your 42 funds.
On and on... Multiplying the number of funds you own does not necessarily mean you are getting more diversification.

2) Your overall expense ratio is 0.85%. So in addition to giving $8,000 a year to fidelity, you pay $6,800 a year in various fund fees. According to the 4% rule, a $800K portfolio would generate $32,000 in gross annual income. After taxes and giving $14,800 to Fidelity and various fund companies, you'll be lucky to have $15,000 left to pay the bills. Ouch!

3) Your overall asset allocation is 6% cash, 43% US stocks, 12% international stocks, 38% bonds and 1% other. Your international exposure is pretty low. Was it done on purpose?

4) With your 42 funds, Morningstar says that your equity portfolio pretty much duplicates the S&P 500 in terms of stock types and sector weightings. In other words, you could replace most of these 42 funds with a single fund tracking the S&P500, like the Vanguard 500 fund which has an expense ratio of only 0.07% (for admiral shares).

haha · 01-13-2009, 10:17 PM

Quote:

Originally Posted by FIREdreamer

4) With your 42 funds, Morningstar says that your equity portfolio pretty much duplicates the S&P 500 in terms of stock types and sector weightings. In other words, you could replace most of these 42 funds with a single fund tracking the S&P500, like the Vanguard 500 fund which has an expense ratio of only 0.07% (for admiral shares).

Quote:

Originally Posted by haha

With that many funds you have pretty well duplicated an index fund, paid higher fund fees, and picked up a 1% poke in the eye.

I am kind of surprised that they would do this to you.

Ha

Looks like you proved it.

Grep · 01-14-2009, 12:54 AM

Quote:

Originally Posted by haha

I'd say yes, you are probably onto something. Who cares about expenses when returns will be huge?

Ha

Kabekew,

At the risk of being presumptuous, I'd say HaHa is being darkly sarcastic, and knows full well that:

1) Expenses matter tremendously! Several, including myself, have pointed out that the low, low fees of "only" 1.85% are eating you alive. You can easily duplicate their results with fees that are 10-20 times less. Compound that over 20-30 years and you are leaving a fortune on the table and have less each year to spend. You can do so much better quite easily.

2) Returns by "the experts" demonstrably do not, and even cannot, beat the averages long term (e.g., broad index funds). Maybe Warren Buffet is the exception, but every prior golden boy has failed in the end. By its very composition, your amalgamation of 40 funds will basically equal some simple combination of a few broad index funds (but the latter will substantially lack the redundancy that others have pointed out).

3) It's often been said that the richest clients are the easiest to be gulled by pitches that they are "special" and deserve special hands-on treatment. Of course, that costs a "little" extra, but it's worth it. Wrong! You succeeded in business. You can succeed in investments, too. But, your broker is NOT your friend! His job is to drain as much money as possible from your account, now and in the future.

Your assignment, should you choose to accept it, is to study the fundamentals of investment and asset allocation. I recommend that you do nothing more until you can make your own choices with some sense of confidence.

dex · 01-14-2009, 07:36 AM

Quote:

Originally Posted by FIREdreamer

Well, I ran an X-ray on your portfolio (yeah, I know, I have too much time on my hands).

Great analysis.

FinanceDude · 01-14-2009, 08:10 AM

Quote:

Originally Posted by Kabekew

I'd think Fidelity's monied customers are probably money-savvy and will readily compare them to the competition and DIY index funds. So it's in their ultimate interest to hire the best people to figure out the best way to get the best returns for their clients, not just sucker people in with some shtick.

You're right about Fido's customers, you are wrong about the people they hire.......

Gotadimple · 01-14-2009, 11:03 AM

Quote:

Originally Posted by Kabekew

I'd think Fidelity's monied customers are probably money-savvy and will readily compare them to the competition and DIY index funds. So it's in their ultimate interest to hire the best people to figure out the best way to get the best returns for their clients, not just sucker people in with some shtick.

And so their best and brightest came up with a scheme like this -- a fund of 40-some funds. Could they maybe be right? Is this maybe be the best way to invest, currently? Diversify your diversified funds? Why else would they do something like that, knowing everybody would be watching them and asking on message boards about it?

Kabekew: I am encouraging you to do some reading. Please consider:

All About Asset Allocation by Rick Ferri

He provides enough justification to help you understand that you only need about a dozen investments (low-load mutual funds or ETFs) to generate the result you want.

Realistically, what you have in the 42 funds is a lot of overlap in the underlying stocks and bonds in each fund. You can encourage Fidelity to do it more simply, or walk away another management company who can do the same thing for you. Have they proven to you that the 42 investments aggregate to a specific asset allocation? Does that allocation match your comfort level? Have they told you overall what their investment will cost you annually (management fee plus underlying fund expense ratios)? Is the set of investments they've provided the only way to achieve that asset allocation, or do they have better ideas?

All I'm saying is that there is lots of experience and evidence that 42 investments in mutual funds will not necessarily get you a better result -- especially when you've only invested $800,000. Many here have similar amounts invested in far fewer instruments. I would understand their investment strategy far better if your investment was $8,000,000.

I'm also saying they've done you a disservice and they need to be made aware that you know they can do better.

-- Rita

FinanceDude · 01-14-2009, 12:33 PM

Ask them this question: Who decides the number and kinds of funds in this account? Also, how often do they review and change the fund mix?

Let me know the answers to those questions, it might be quite interesting.......

samclem · 01-14-2009, 01:27 PM

Quote:

Originally Posted by Grep

. . . Returns by "the experts" demonstrably do not, and even cannot, beat the averages long term (e.g., broad index funds). Maybe Warren Buffet is the exception, but every prior golden boy has failed in the end.

I'd soften this a bit and say "the number of experts who beat the market over time is roughly the same as would be predicted by random chance. And being able to know which one will be successful in the future ('picking the picker') is either impssible or requires more analysis than just picking the stocks yourself."

Regardng Buffet: I'd say he's not really a stock picker. He buys businesses and puts people in charge of running them. They do a good job and the value of the stock goes up. That's not something you, I, or the 22 YO "advisor" at Fidelity can do.

clifp · 01-14-2009, 01:40 PM

Quote:

Originally Posted by FIREdreamer

Well, I ran an X-ray on your portfolio (yeah, I know, I have too much time on my hands).

I found some interesting things:
1) do you know what your top stock holdings are?
JP Morgan. Actually 14 out of your 42 funds own that stock.
Bank of America owned by 9 funds out of your 42 funds.
Microsoft owned by 12 out of your 42 funds.
On and on... Multiplying the number of funds you own does not necessarily mean you are getting more diversification.

4) With your 42 funds, Morningstar says that your equity portfolio pretty much duplicates the S&P 500 in terms of stock types and sector weightings. In other words, you could replace most of these 42 funds with a single fund tracking the S&P500, like the Vanguard 500 fund which has an expense ratio of only 0.07% (for admiral shares).

I see I was being conservative when I said early in the thread "Eventhough you don't own an index fund per se, I bet you own every Dow stock, and the more popular ones like GE, Exxon, and Microsoft you probably own in 3 or more mutual funds." FIREdreamer how many funds own GM.

I guess I understand why Fidelity doesn't provide him with an Xray view.

I guess the good news is that JP Morgan is widely considered to be the safest big bank out there, practically unsinkable. Not that anyone should worry about a bank encountering any type of dangers in the financial waters of January, 2009

Bails · 01-14-2009, 02:09 PM

This is an interesting thread. I wonder if you considered not investing at all, and keeping your powder dry for a bull market. I would not buy any American Stocks at present, but I have different reasons. I would also never buy Mutual Funds by choice, mandated investing can really hurt .

FIREd · 01-14-2009, 02:44 PM

Quote:

Originally Posted by clifp

I see I was being conservative when I said early in the thread "Eventhough you don't own an index fund per se, I bet you own every Dow stock, and the more popular ones like GE, Exxon, and Microsoft you probably own in 3 or more mutual funds." FIREdreamer how many funds own GM.

I guess I understand why Fidelity doesn't provide him with an Xray view.

I guess the good news is that JP Morgan is widely considered to be the safest big bank out there, practically unsinkable. Not that anyone should worry about a bank encountering any type of dangers in the financial waters of January, 2009

I tried to post the entire stock intersection report for those who wanted to dig a bit deeper but it is 35 pages long

and the file was taking forever to upload so I gave up.

But the top 30 stocks are: JP Morgan (14), BOA (9), Microsoft (12), Pfizer (9), Walmart (11), IBM (7), Cisco (10), McD (7), GE (10), Wells Fargo (9), Exxon (9), HP (11), CVS (11), ConocoPhillips (8), Apple (11), Chevron (7), Philip Morris (6), P&G (9), Wyeth (10), Verizon (7), Oracle (6), Time Warner (5), Google (9), Covidien (5), Coke (8), Transocean (5), Pepsi (7), Kraft (5), Home Depot (6) and Occi Petroleum (6)... Couldn't find GM, but I might have missed it because the list is pretty long.

Note: the number in () is the number of funds that own the stock.

Kabekew · 01-14-2009, 04:09 PM

Quote:

Originally Posted by Gotadimple

...Have they proven to you that the 42 investments aggregate to a specific asset allocation? Does that allocation match your comfort level? Have they told you overall what their investment will cost you annually (management fee plus underlying fund expense ratios)? Is the set of investments they've provided the only way to achieve that asset allocation, or do they have better ideas?

All I'm saying is that there is lots of experience and evidence that 42 investments in mutual funds will not necessarily get you a better result -- especially when you've only invested $800,000...

I don't know about "proven," but they did give me the target percentage allocation by sectors and I trust that they're not deceiving me, anyway, and that those overlaps do aggregate to their target mix. I don't have the percentages here, but I remember it did match my comfort level for risk/reward and minimizing volatility, especially currently.

I guess I'm not really looking for "best result" (you mean maximum returns?) or to necessarily "maximize diversity," I'm looking more at preservation and tax-aware equities than growth right now.

Compared to the index funds like I've been tracking since opening that Fidelity account, and my SEP-IRA and 401K's which are in just a few mutual funds, so far Fidelity has me up a little over 1% after fees (plus loss carryovers), compared to SPY for example down just about 6% over the same period, my retirement accounts down 3 and 8%, and my play fund down 5%... not much of a robust comparison yet but at least Fidelity isn't doing worse.

Oh well... I'll give them a year and see how they do.

Thanks for all your input!

ERD50 · 01-14-2009, 04:09 PM

Quote:

Originally Posted by dex

I have to agree with what most have said - 42 funds, why?
Can you ask them their strategy?

ummmm, excuse me if this was answered already, but I didn't see it above.

The answer was immediately obvious to me:

List of phrases from The Hitchhiker's Guide to the Galaxy - Wikipedia, the free encyclopedia

Quote:

Answer to Life, the Universe, and Everything (42)

In the first novel/radio series, a group of hyperintelligent pan-dimensional beings demand to learn the Answer to Life, the Universe, and Everything from the supercomputer Deep Thought, specially built for this purpose. It takes Deep Thought 7½ million years to compute and check the answer, which turns out to be 42.

Quote:

I don't see a high yield corp fund in the mix; is there? If not, why not.

Silly boy, that would be 43 funds! It is the wrong number of funds!

-ERD50