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Old 01-14-2009, 06:02 PM   #61
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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."
That is what I said.

With 42 dart-throwing monkeys active fund managers at your service, it's highly likely that the net result will be average. Firedreamer provided evidence of this by demonstrating that the totality of the funds substantially mimics the S&P 500, albeit with absurd levels of redundancy. Almost the only reason for something like this is to help protect against a Madoff-like scenario (though I'd suggest that such a scattershot approach probably increases the raw chance of getting hit vs. just going with Vanguard).

Here's the rub: if your 42 fund managers merely wind up substantially mimicing the S&P 500, and hence only match the market on average, and it costs you ~2% a year instead of 0.07% for them to do so, then on average you are behind ~2% every year. Compound that for a few decades, and you are out serious money.

Ultimately, some people will be more comfortable leaving things in the hands of others. Perhaps you are one of them. I think that what many are saying is that there are far less expensive ways to do it.
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Old 01-14-2009, 06:54 PM   #62
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.....................

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

Thanks for all your input!
I was a little disappointed to read this, but not surprised. I've tried to help others (relatives / friends) in the past and when I gently pointed out that they were getting overcharged, I found that they were embarrassed to have gotten into the situation and reluctant to make any changes.

I don't mean anything personal by this Kabekew - you need to come to your own conclusions.
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Old 01-14-2009, 08:05 PM   #63
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I was a little disappointed to read this, but not surprised. I've tried to help others (relatives / friends) in the past and when I gently pointed out that they were getting overcharged, I found that they were embarrassed to have gotten into the situation and reluctant to make any changes...
Well I'm hardly "embarrassed," I'm intellectually curious and interested in the result! That's worth $8K to me.
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Old 01-14-2009, 08:18 PM   #64
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Well I'm hardly "embarrassed," I'm intellectually curious and interested in the result! That's worth $8K to me.
Good luck, maybe it will work out. At the very least, you'll be helping some of us cheapskates out, since some of this money may help Fidelity keep their rates low on the Spartan series of funds.

PS: I'm eager to help you get the most from your intellectual experiment. Pay me just $500 per month and I'll set up a parallel (notional) account using a diversified list of low-cost funds. I'll badger you every month whenever I'm ahead. It's a bargain!
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Old 01-14-2009, 08:22 PM   #65
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Well I'm hardly "embarrassed," I'm intellectually curious and interested in the result! That's worth $8K to me.
I can't think of a way to respond without sounding kind of challenging, so I hope you will give me some slack. I am really intersted in this statement above.

There must be something to this that I don't get. I have been trying to get a relative of mine to lose his wrap account for three years. He has more than $5mm in it, so as you can see he is kissing off quite a bit of money every year. Money he could spend taking me out to dinner or buying me a Porshe or something cool.

Maybe he has the same motivation as you. What intellectually interesting result is it that you hope to get for your $8000?

If your accounts outperform enough to clear the cost hurdle for one year, is that the result that you are interested in?

ha
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Old 01-14-2009, 08:34 PM   #66
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Kabekew, you came, you shared, you got feedback--and you're doing what you feel comfortable with. Can't argue with that!
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Old 01-14-2009, 09:13 PM   #67
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What intellectually interesting result is it that you hope to get for your $8000?
The comment which follows is NOT about Kabekew's situation:
Haha, I don't know how you could convince your relative to give up his wrap account. For example, you could post his holdings here and 20 of us could devise alternative portfolios. 12 months later we could look at the result, and maybe 12 would have beaten the results he got in real life. But still, he'd maintain that it proves nothing, since it was just one year--and he'd be right! We could do the same thing for 10 years, generally besting his returns, but still he'd probably be unconvinced because the sample size is too small. So, to get a big enough sample size you'd have to look at the results of ALL advisors compared to mixes of indexes--and we know how this turns out: Advisor's trail consistently (once costs, fees, and tax implications are included). But here's the rub: That's an average, it's not HIS advisor--HIS guy knows how to do it.
In what other area of our lives can we pay an "expert" working for a big, well-respected company and receive so little in return? (okay, maybe annuity salesmen are in the lead). It's just a little hard to believe that these advisors (particularly ones who are "exclusive" and won't let just any client in) could add no value at all.

It's interesting that the academic consensus of "what works" is so far removed from the information promulgated by most brokers (and some financial advisors). But Swedrow, Ferri, and Bernstein are dull and have a small following. Cramer is a superstar (or he was).
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Old 01-14-2009, 09:24 PM   #68
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The comment which follows is NOT about Kabekew's situation:
Haha, I don't know how you could convince your relative to give up his wrap account. For example, you could post his holdings here and 20 of us could devise alternative portfolios. 12 months later we could look at the result, and maybe 12 would have beaten the results he got in real life. But still, he'd maintain that it proves nothing, since it was just one year--and he'd be right! We could do the same thing for 10 years, generally besting his returns, but still he'd probably be unconvinced because the sample size is too small. So, to get a big enough sample size you'd have to look at the results of ALL advisors compared to mixes of indexes--and we know how this turns out: Advisor's trail consistently (once costs, fees, and tax implications are included). But here's the rub: That's an average, it's not HIS advisor--HIS guy knows how to do it.
In what other area of our lives can we pay an "expert" working for a big, well-respected company and receive so little in return? (okay, maybe annuity salesmen are in the lead). It's just a little hard to believe that these advisors (particularly ones who are "exclusive" and won't let just any client in) could add no value at all.

It's interesting that the academic consensus of "what works" is so far removed from the information promulgated by most brokers (and some financial advisors). But Swedrow, Ferri, and Bernstein are dull and have a small following. Cramer is a superstar (or he was).
This is pretty much how I see it too. Like you say, 1 year proves nothing, 10 years little more. And the 3rd party research is evidently not compelling enough (to him) to make a change. I have pretty much given up, because who wants to be a bore? ( I should point out that I am talking about my relative's situation, not Kabekew's.)

Ha
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Old 01-14-2009, 10:27 PM   #69
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It's of no matter, but I'm giving up too.
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Old 01-15-2009, 05:12 AM   #70
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Just wanted to share with you guys that this thread was helpful to me; I shared it with my brother, and he said he it helped him see how he needs to reduce the number of funds he has. (He is already in the process of changing funds and brokerage firms.)
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Old 01-15-2009, 05:56 AM   #71
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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.



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

Thanks for all your input!
Let me try and tie your two threads together. Like you I suddenly found myself with 3+ million at age 40. Now much of this was from stock options, which I think is even more related more to luck than skill than founding a business and than selling it. Still generally speaking I think achieving FIRE is a some combination of being smart, lucky and wise. Smart and Lucky helps you earn the money, and Wise prevents you from spending it in a foolish fashion. I elected to retire 9 years ago for a variety of factors, but what started me on the road about a dozen years was the realization that with my portfolio, if I could earn a percent or two more on portfolio that was worth and extra 20-60K. That dwarfed an expected return for working hard to move up a rung in the corporate leader. I start spending more time learning about investing and less time putting in OT at the office. I am sure I am made the right choice.

One of the beauties of retiring is that suddenly it gave me both plenty of time to learning about investing and a huge incentive to do so. As I side benefit I found it intellectually stimulating. I think I learned more about investing the 1st year of retirement than I did my previous 15 year, plus my MBA.

There are plenty of this board who took the time to learn and decided that active investing like I and several others do is to much like work. For these people a handful of index funds, or some proven balanced funds winners like Wellesly are a great (and arguable the best) investment strategy.

Over the years I seen a lot of people stop by this and other retirement boards and ask about their investment advisers. On rare occasions they have a broker who is talent stock picker and outperforms the market over a long period of time. Sometimes the advisers have access to the two families of managed funds l DFA, or American Funds which have stellar long term record and only are available to advisors. Most often they are disguised annuity salesman. What I have never seen is an adviser who puts clients in a large number of actively managed fund that outperforms a similar group of index funds over even 5 years much less 10. Think about this as businessmen. You are paying a person(s) to take your money and distribute to 40+ other groups of people (fund managers), they in turn are taking the money, and distributing (somewhat indirectly) to CEO/Mangement of thousands of corporations. How can these hugh number of people actually do better than average. These isn't Lake Woebegon not all kids are above average. The folks at Fidelilty and the folks at the various funds are all talking their cut which adds about about $15,000 on your $800,000 portfolio and obviously $60K if you decide to take your $3 million and hand it off to Fidelity.

If you want to give Fidelity another year I can somewhat understand it, "hey these guys are professionals and $1-3 million is a lot of money". Still I would highly encourage you to become wise about personal investing early on during retirement. Because I think that financial wisdom is probably the most important skill for a less stressful, successful early retirement.
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Old 01-15-2009, 08:23 AM   #72
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I'd ask them for a lower fee. Most firms can lower the fee if they want to......
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Old 01-15-2009, 06:09 PM   #73
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What I have never seen is an adviser who puts clients in a large number of actively managed fund that outperforms a similar group of index funds over even 5 years much less 10.
I'm not trying to get maximum returns with associated increased risks and volatility, I'm trying to preserve my assets while providing enough inflation-adjusted income to retire on. However just parking in treasuries or municipals won't be enough. Also I want reduced volatility in this market, it's too stressful being up or down $100K in a single day. Those were my investment objectives I told them, and this type of allocation is what they proposed.

So how else can I achieve that doing it myself? I don't have time and resources to do any kind of due dilligence on all the different targeted fund managers, keep up to date on all the sectors and follow which are and aren't facing hard times. And index funds are as volatile as the markets they track, which are currently too much for me. That implies balanced funds, but who's balancing them? Managers... and now I'm right back to not knowing the current managers and their track records. I'd rather pay someone to do all that research for me, make recommendations, and I can decide yes or no if I want to do it.

And just like hiring a new employee, I'm willing to see how they do and if I get my money's worth from how they perform. If I don't, they get fired!

(Although that said I'm not foolish enough to put everything in one institution, or fund for that matter... $800K is all I'm doing with them).

Thanks again for your viewpoints everyone!
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Old 01-15-2009, 07:33 PM   #74
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And just like hiring a new employee, I'm willing to see how they do and if I get my money's worth from how they perform. If I don't, they get fired!
You hit on one way to evaluate if Fidelity Adivse is good for you - a new employee - not an employee with no experience.

Ask Fidelity what funds would they have put you in X years (you choose) ago, how would they have changed them over the years and how would they perform. This is similar to looking at an employee's resume.

I'm guessing you might get some push back from Fidelity. But considering the money you will be paying them over the years, they should be willing to do it.
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Old 01-15-2009, 08:10 PM   #75
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Ask Fidelity what funds would they have put you in X years (you choose) ago, how would they have changed them over the years and how would they perform. This is similar to looking at an employee's resume.

I'm guessing you might get some push back from Fidelity. But considering the money you will be paying them over the years, they should be willing to do it.
They most likely will NOT be able to answer that. These wrap accounts are "pre-packaged", all they are doing is putting folks into them.......
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Old 01-15-2009, 08:27 PM   #76
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You hit on one way to evaluate if Fidelity Adivse is good for you - a new employee - not an employee with no experience.

Ask Fidelity what funds would they have put you in X years (you choose) ago, how would they have changed them over the years and how would they perform. This is similar to looking at an employee's resume.

I'm guessing you might get some push back from Fidelity. But considering the money you will be paying them over the years, they should be willing to do it.
Well, they are an "employee" with lots of experience...

Yes I went through all that with them, spent about 10 hours of their time and they gave me both their actual and theoretical past performance of their allocation strategy for the strategy back to the mid-80's (asset protection, tax aware given my current salary, similar mix of investments outside Fidelity, and moderate growth). They have in-house tools that show all that, and gave me a report. After fees their alpha was around 0 from what I could get myself if I had picked the right handful of cheap balanced funds.

So why not try it? I'm willing to give them a year probationary "employment" to see what happens. Worth the $8K to me, heck that's only a month's office rent.
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Old 01-15-2009, 08:28 PM   #77
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Kabekew, this is getting interesting. My 2 cents if you don't mind:

First, let's analyze what you just said -

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I'm not trying to get maximum returns with associated increased risks and volatility, I'm trying to preserve my assets while providing enough inflation-adjusted income to retire on.
OK, you've stated a goal - good.

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However just parking in treasuries or municipals won't be enough. Also I want reduced volatility in this market, it's too stressful being up or down $100K in a single day.
OK, so you want higher returns than treas/munis, and lower volatility than the market. Reasonable, and something most of us target for our own portfolios. You're not alone.


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So how else can I achieve that doing it myself?

I don't have time and resources to do any kind of due dilligence on all the different targeted fund managers, keep up to date on all the sectors and follow which are and aren't facing hard times.
I think that what a lot of people are telling you is, putting money in 42 different funds (despite being the magic number) does not provide any assurance of reaching your goal. In fact, the drag-down of excess fees almost *guarantees* that you will *not* achieve your goal.

Quote:
And index funds are as volatile as the markets they track, which are currently too much for me. That implies balanced funds, but who's balancing them? Managers... and now I'm right back to not knowing the current managers and their track records. I'd rather pay someone to do all that research for me, make recommendations, and I can decide yes or no if I want to do it.
IMO, you are making this too complicated. It is easy to set up a balanced portfolio across a few index funds. There is no management involved, other than determining an initial match to your risk tolerance, and perhaps some rebalancing when the AA gets out of whack.

Think about those fees again. You don't have to do better than these guys. If you do *worse* ( by the amount of their fees) you will still be ahead. I'll reiterate the new employee analogy - you should at least have a track record to go on. What evidence do these guys present that they can (after fees) provide a higher risk-adjusted return than a blend of a few index funds?

If they *can* provide that info, they may well get some of my money. But it would have to be in that order. Show me the goods, then I'll show you the money. You are playing this game in reverse, IMO.

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Old 01-15-2009, 08:38 PM   #78
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Well, they are an "employee" with lots of experience...

They have in-house tools that show all that, and gave me a report. After fees their alpha was around 0 from what I could get myself if I had picked the right handful of cheap balanced funds.
Sorry, didn't see your post before I posted.

Umm, what did you expect them to show you? That you would be better off w/o their 1% fee?

C'mon, lets use some common sense. As others have said, you buy 42 overlapping funds, you are approaching average. I'm extremely skeptical that they managed to pick funds that outperform. If they knew which funds would outperform, Fidelity would replicate that in their other funds so they would only have winners. It just does not make sense.

Plus, they have to outperform by over 1% just to get even with what you could probably do on their own.

I don't have time to go back and re-read the thread, maybe this has been thrown out before, but maybe we should do the Pepsi Challenge right here. It would be interesting if you committed $X to this, with no money moving in/out (to keep it simple), and maybe some of us would be willing to try to match your AA, and we could compare monthly values and volatility to our faux account. That could be an eye-opener.

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Old 01-15-2009, 08:41 PM   #79
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What evidence do these guys present that they can (after fees) provide a higher risk-adjusted return than a blend of a few index funds?

If they *can* provide that info, they may well get some of my money. But it would have to be in that order. Show me the goods, then I'll show you the money.
Exactly, which is why I'm doing this. I'm gathering the evidence and will compare their performance against the simple blended funds I have the bulk of the rest of my money in -- show me the goods, as you say.
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Old 01-15-2009, 08:57 PM   #80
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Umm, what did you expect them to show you? That you would be better off w/o their 1% fee?
I expected the truth of their past performance. I don't think Fidelity would be willing to outright misrepresent their numbers and violate SEC regulations, and the law, in order to possibly gain an extra $8K revenue from some schmuck that walked in. So yes I do trust what they claimed.
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