Here's what my 1% fee Fidelity Portfolio Advisors have me in

[Kabekew]

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.

 

[ERD50]

Kabekew, this is getting interesting. My 2 cents if you don't mind:

First, let's analyze what you just said -

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.

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.

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.

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.

-ERD50

 

[ERD50]

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.

-ERD50

 

[Kabekew]

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.

 

[Kabekew]

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.

 

[dex]

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.

This puts everything in a different light. Let us know how it turns out.

I would have done it a bit differently - used past performance to evaluate the two portfolios.

 

[ERD50]

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.

Oh I don't expect anything they said could be construed as a "misrepresentation". That's what they pay their lawyers for.

But, there is a lot of wiggle room between what would pass muster in this forum as apples-to-apples, and what would be called illegal in court. I'm sure they wiggled within the law.

I would have done it a bit differently - used past performance to evaluate the two portfolios.

Sure seems good to me. Lower cost, and you can get your answer today.

Why wait a year to find out, and risk your own money? Sorry, not making sense to me.

But I'm confused now, again I'll apologize for not re-reading the whole thread, but how did you go about picking funds to match their portfolio?

wait a minute, I found it...

So far though they're outperforming my own $100K "play" fund I set up for comparison, which is down 5% over the same period (my own mix of blue chip and index funds, bought mostly on popular website and TV blowhard recommendations).

Sorry, but funds recc from a "popular website" and "TV blowhards" (Cramer?) hardly qualify as something that could be called a low-cost, risk adjusted match for their 42 funds. Doesn't mean thing, really. And it wouldn't mean a thing if your picks out-performed theirs. It's simply not apples-to-apples.

-ERD50

 

[Gardnr]

..... And it wouldn't mean a thing if your picks out-performed theirs. It's simply not apples-to-apples.

-ERD50

And it's an entirely too short time frame for meaningful comparison. Even a year isn't really sufficient . So by the time you compare over a meaningful period of time, it's too late, you've already wasted all that money.

I'm with you ERD50, why ignore the volume of academic research out there (and a bit of common sense)?

But hey, it's his money to burn.

 

[Kabekew]

Sorry, but funds recc from a "popular website" and "TV blowhards" (Cramer?) hardly qualify as something that could be called a low-cost, risk adjusted match for their 42 funds. Doesn't mean thing, really. And it wouldn't mean a thing if your picks out-performed theirs. It's simply not apples-to-apples.

I don't care how they choose to allocate it, I'm just comparing their "professional portfolio service" to results I could get on my own with the same investment goal, which I have split into that $100K play account I'm managing myself (from TV blowhards, newsletters and WSJ "word on the street" type picks, broad index funds, and balanced by some "ultra" ETF's I'm using as hedges), my previous SEP and 401K accounts (Fidelity 2020 and a large cap blend with ING), and some low-fee Vanguard accounts that all have similar investment strategies. We'll see who comes out ahead!

But really I just posted this as a curiosity thing for DIY people who might wonder what some "professionals" are currently recommend. I wasn't really looking for investment advice from anonymous internet users, but thanks anyway for your views!

 

[ERD50]

But really I just posted this as a curiosity thing for DIY people who might wonder what some "professionals" are currently recommend. I wasn't really looking for investment advice from anonymous internet users, but thanks anyway for your views!

But what is anyone going to learn? I don't get it.

The comparison is meaningless. You won't know if the pros did "better" or not, w/o a basis for comparison.

So all we have learned is that they will charge you 1% to put you in a mix of funds that probably have relatively high fees.

That's enough for me.

Just a guess, but I'm getting the impression that you are just looking for "validation" of your decision to hire managers. Because you have not set up anything that would allow them to fail in a meaningful way.



-ERD50

 

[Kabekew]

Just a guess, but I'm getting the impression that you are just looking for "validation" of your decision to hire managers.

Seeking validation from anonymous internet users? Geez, you guys read too much into this... I'm not seeking investment advice, I'm sharing what I thought was interesting information. I'm all set with my counsel, thanks though!

 

[OAG]

Gosh, and I thought I was "hardheaded" for "investing" solely in FDIC Insured Certificates of Deposit in a Ladder returning 5.74% over the past 10 and future 7 years. Wonder how that compares in the last year (we know the last 3 months) to OP's "stock/mutual fund portfolio"?

 

[Kabekew]

Gosh, and I thought I was "hardheaded" for "investing" solely in FDIC Insured Certificates of Deposit in a Ladder returning 5.74% over the past 10 and future 7 years. Wonder how that compares in the last year (we know the last 3 months) to OP's "stock/mutual fund portfolio"?

Hi OAG, I made most my money with stock in a single company, not publicly traded securities, so it's kind of hard to compare (and yes I know you're being sarcastic). But my NAV was $900,000 end of 2007 and just under $3M end of '08... so 300%?

My SEP-IRA with only around $100K and 401K with $30K were down 35 and 22% last year.

Your strategy is probably good for you at your age... good for you.

 

[OAG]

Hi OAG, I made most my money with stock in a single company, not publicly traded securities, so it's kind of hard to compare (and yes I know you're being sarcastic). But my NAV was $900,000 end of 2007 and just under $3M end of '08... so 300%?

My SEP-IRA with only around $100K and 401K with $30K were down 35 and 22% last year.

Your strategy is probably good for you at your age... good for you.

I will still live well with my paltry 17.1% the same period. The problem I have is that I am so risk adverse, some would say, it hurts me! I do not post exact #'s but suffice it to say 5.7% year over year and compounded since I "retired" (30 years ago this year) has been just fine for us. Frankly, I do not know how I would feel to take hits like some have over those same years. But we all have to be happy with what we decided to do in all aspects of our life and pardon my sarcasm I was just kind of gloating. I do think that people on this site have some of the very best "real life" advice for those that accept it (mine excluded), especially in the financial areas.

 

[ERD50]

Seeking validation from anonymous internet users? Geez, you guys read too much into this... I'm not seeking investment advice, I'm sharing what I thought was interesting information. I'm all set with my counsel, thanks though!

Nah, I didn't mean seeking validation from us - you are correct, who are we but a bunch of anonymous internet users? And you're not getting it from us anyhow. But I do think you are trying to get it by creating some almost random portfolio, which seems bound to fail, so you can tell yourself you made the right decision paying these people 1% plus fees.

You say your advisors are up 5%, and your 'play fund' is down 5% for the same period. That tells me they are not apples-to-apples. You just don't see that sort of variation from a broad range of funds if they really represent the same AA and risk.

-ERD50

 

[Kabekew]

Just a follow up, I talked to my portfolio advisors about this and double-checked with my CPA firm (the ones who found a way to save me $600K in taxes last year alone... yes I trust their competency.

Turns out it's allocated over lots of overlapping funds this way to minimize if not eliminate taxes on my yearly withdrawals. As a whole the portfolio is unlikely to perform better than the market, but the more variations I have in funds the more that will be above, at below alpha from the market if not outright losses even in a bull market. So they make my retirement withdrawals by realizing the least performing fund compared to my cost basis and presto, I might not even owe taxes, or if so it's less than if I had withdrawn from a plain index fund.

You can see that effect in that listing I showed originally: if I cashed it out right then, that $11K ($10K after their fee, I got their quarterly invoice today) is all tax-free because they also had $30K realized losses. If I stuck that $800K in an index fund that made the same $11K, I'd owe 33% of that as short term capital gains.

So far I make more with them than going off the advice of random internet curmudgeons. So I've decided to stick with the professionals for now with this, thanks anyway!

 

[Bestwifeever]

Hey, who you calling a random internet curmudgeon? Nothing random about us!

Seriously, I think we all do what we all need to do--and I'm glad this is working out for you personally. It was good to see information about a non-DIY strategy (and besides being random internet curmudgeons, there are a lot of DIYers on this board).

I'm curious and no need to share if you don't wish to, but what did/will you do with the balance of the money from the sale of your business?

 

[FIREd]

Just a follow up, I talked to my portfolio advisors about this and double-checked with my CPA firm (the ones who found a way to save me $600K in taxes last year alone... yes I trust their competency.

Turns out it's allocated over lots of overlapping funds this way to minimize if not eliminate taxes on my yearly withdrawals. As a whole the portfolio is unlikely to perform better than the market, but the more variations I have in funds the more that will be above, at below alpha from the market if not outright losses even in a bull market. So they make my retirement withdrawals by realizing the least performing fund compared to my cost basis and presto, I might not even owe taxes, or if so it's less than if I had withdrawn from a plain index fund.

You can see that effect in that listing I showed originally: if I cashed it out right then, that $11K ($10K after their fee, I got their quarterly invoice today) is all tax-free because they also had $30K realized losses. If I stuck that $800K in an index fund that made the same $11K, I'd owe 33% of that as short term capital gains.

So far I make more with them than going off the advice of random internet curmudgeons. So I've decided to stick with the professionals for now with this, thanks anyway!

So you're not paying any taxes because.. you sold at a loss? Woohoo! Anyone can do that, it doesn't take a genius. Oh, and believe me, you can do the same thing with an index fund. It's called tax loss harvesting. Oh well, we tried...

 

[ERD50]

Kabekew, I hope I don't sound like I'm "piling on", I just like to play Devil's Advocate as a sort of educational process, to test my own knowledge of stuff. People will chime in if my viewpoint is off the mark, and then I learn. So....

and double-checked with my CPA firm (the ones who found a way to save me $600K in taxes last year alone... yes I trust their competency.

This is always a potential problem with non-DYI people. In this case, how can you know that you didn't really deserve to save $800K in taxes, and they missed it? You could be out $200K! Maybe they aren't so competent, or maybe they are - but how can you tell?

As far as the tax strategy of selling losers - well, maybe, maybe not. It is a double-edged sword. It depends. Remember, the winners are increasing in gains. If taxes go up in the future (likely for high income people), you may have deferred taxes now, to pay at a higher rate later (hopefully, your portfolio goes UP on average, long term).

Most retirees have their portfolios set up such that they don't take short term gains - that's what the cash and fixed income allocations are for. Generally.

So far I make more with them than going off the advice of random internet curmudgeons. So I've decided to stick with the professionals for now with this, thanks anyway!

I'm not expecting to change your mind, and (unless I'm in your will), it's no matter to me. But, since you put your thoughts out there in public, I will challenge them. And your statement is false, you really do not know that "So far I make more with them than going off the advice of random internet curmudgeons", because you have not set up a portfolio proxy that the "internet curmudgeons" would have advised.

But you seem to be happy with your choice, so don't let facts get in the way of that.

-ERD50

 

[Grep]

So is that what "tax aware" means? Paying ten to twenty times extra in fees to own a bunch of redundant, lagging and losing funds so you can cash them out while low?!?

A strategy that many of us "random curmudgeons" feel is actually sensible is "slice and dice." Buy a spectrum of disparate funds (as UN-correlated as possible, not redundant!) and rebalance periodically. The trick is to buy low and sell high, after all, not the opposite!

But of course, you've got actual experts on your side to think [-]about their boat payments[/-] for you, so pay no attention!

 

[ERD50]

So is that what "tax aware" means? Paying ten to twenty times extra in fees to own a bunch of redundant lagging and losing funds so you can cash them out while low is good now?!?

A strategy that many of us "random curmudgeons" feel is actually sensible is "slice and dice." Buy a spectrum of disparate funds (as UN-correlated as possible, not redundant!) and rebalance periodically. The trick is to buy low and sell high, after all, not the opposite!

Yes, a continual sell LOW seems like an interesting plan, no?

Hmmm, I smell an opportunity here. Let' say I start a family of Mutual Funds specifically designed for this "tax aware" process. I could take the guesswork out of this, by offering a variety of "target" funds. Something like this:


The 5% Target Fund - guaranteed to lose 5% a year, to assist you with your tax planning. Very useful to offset those pesky gains you may experience with some funds!


The 10% Target Fund - guaranteed to lose 10% a year, for those with more aggressive needs.


The Select 20% Target Fund - guaranteed to lose 20% a year, for a select group of investors with special tax needs. Please be aware, that due to the extreme measures required to guarantee a 20% loss, this fund is subject to higher fees, and higher minimums.

And, only for exceptional clients, after a conference and extensive interview with our panel of professionals, we are proud to offer our exclusive:

The Immediate 100% Target Fund - Yes, if you need an immediate tax loss for the current tax year, this is the fund for you! We *guarantee* to lose every penny! Please note, no withdrawals of any sort, early or not, are allowed. Please provide a valid credit card for us to charge the fees to, as there will be nothing left in your account.


Who needs a Ponzi scheme, when people are looking to lose money?


-ERD50

 

[travelover]

OK, boys, call in the dogs and pee on the fire..........

 

[REWahoo]

To those of you posting on this thread I would like to remind you of our Community Rules. Tone down the sarcasm and remember when you challenge others' points of view and opinions, do so respectfully.

 

[Kabekew]

I agree with rewahoo...

Though grep, check your math (1% of 800K is the same as 1% of 800K split 40 times...).

ERD, good luck with that portfolio idea of yours, but if you're interested in tax differences between taking retirement money out of a "dividend only" portfolio such as straight CD's, or a dividend-paying fund like wellesley (treated as "ordinary income"), versus your withdrawals being treated as capital gains (much lower, and you can carry over losses from year to year), consult a professional advisor.

And why the antagonism here? You guys seem really bitter about something.

 

[Grep]

Kabekew,

If you are paying a weighted average of ~0.85% on your 42 funds, and Fidelity is charging you an additional 1% to "wrap" this account, then you are being charged approximately 1.85% expenses.

Vanguard's S&P 500 fund, or their Total Stock Market fund, charges 0.07% when you have over $100k in the funds.

1.85% is 26 times more than 0.07%.

Almost any reasonable allocation of funds at Vanguard is likely to be at least 10 times less expensive. You asked about Wellesley; it's actively managed yet it charges 0.15%, more than ten times less. The Total Bond Market fund charges 0.1%, almost 20 times less. The foreign funds or ETF's that represent the total foreign stock markets, e.g., VPL, VGK, and VWO, cost 0.12%, 0.12% and 0.25% which, in a cap-weighted average, cost more than 10 times less. Want Small Cap Value? VBR costs 0.11%, well over 10 times less. And on and on.

Have a nice day.