I'm taking over my IRA management

[skipro33]

I would not pay a fee to anyone to manage my funds, however I'd be willing to bet that some of the reason for the poorer performance of your portfolio this year is that your equity portion is likely invested in more than just the S&P, e.g. foreign, small cap, emerging markets, real estate and/or commodities. All of these categories have underperformed the S&P this year, so you are comparing apples to oranges.


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I whole heartedly agree. The realization that I am coming to is that Fidelity's equity portion just doesn't work. It looses opportunity in the good times and it stumbles harder during the bad times, ending up loosing ground over the long term. I just can't see anyone making money using this sort of blend, where one equity offsets another until inflation eventually erodes the value of the account. Doubly so for anyone who wants to actually pull income out on a scheduled basis.

 

[audreyh1]

FWIW: https://www.thestreet.com/story/14384738/1/why-the-60-40-asset-allocation-rule-is-dead.html

This does not invalidate the work on the efficient frontier showing risk-adjusted return, nor the models you can run in Firecalc to view volatility and other affects due to AA. AA predicts most of the investment return of a portfolio. It’s perfectly logical for someone to review, model, and choose an AA they think they can stick with. 60/40 is just one option.

“Doesn’t generate enough income” - well that writer is ignoring total return.

 

[ncbill]

FWIW: https://www.thestreet.com/story/14384738/1/why-the-60-40-asset-allocation-rule-is-dead.html

People holding 60/40 portfolios aren't focused on generating income.

They are seeking total return and sell assets as needed to meet cash-flow needs.

 

[stephenson]

Skipro,

I don’t understand how you could have the returns you noted in your original post ... how can any mix result in -1.1% over the last year?

Fidelity is pretty solid in what they do ... can you confirm a fidelity rep put your IRA funds in a muni bound fund?

 

[Dtail]

Skipro,

I don’t understand how you could have the returns you noted in your original post ... how can any mix result in -1.1% over the last year?

Fidelity is pretty solid in what they do ... can you confirm a fidelity rep put your IRA funds in a muni bound fund?

Would a heavy allocation to international stocks do it? Just guessing here.

 

[stephenson]

Detail,

Not sure that would do it ... plus, fidelity usually doesn’t do much other than follow their internal processes for balancing portfolios.

 

[target2019]

Without knowing any details, hard to say what holds the portfolio back. It probably is a combination of int'l and bond fund(s).

 

[Dtail]

Detail,

Not sure that would do it ... plus, fidelity usually doesn’t do much other than follow their internal processes for balancing portfolios.

I looked up Fidelity's recommended allocation for a 60/40 portfolio.
It is 18% Foreign stocks and 35% Bonds. So it is possible that 53% of the portfolio is in negative territory for the last year. Not sure if that allocation is even followed or if the other components would get it back into positive territory.
An explanation from Fidelity at the very least.

 

[stephenson]

Dtail - yeah, absolutely an explanation is warranted ...

Skipro - I would aggressively followup with Fidelity to find out what is going on. The very concept of a 1% fee and then poor relative performance is a killer to their business, not to mention your accounts.

 

[ERD50]

Without knowing any details, hard to say what holds the portfolio back. It probably is a combination of int'l and bond fund(s).

Yes, but I'm not sure it really matters.

To me, the relevant issue is the long term, compared to a DIY portfolio. Can Fidelity really be expected to out-perform (esp after fees) a simple, static DIY portfolio? Sure, certain mixes will over/under perform at times, but in the long run, a 1% fee is a tough current to swim against.

-ERD50

 

[COcheesehead]

Re: your 60/40 split. You don't say how old you are, how far you are from withdrawing the funds, and most importantly, what you have outside of the IRA. Or is it just the $30K checking account, along with pension + SS which is meeting your needs? Your AA should be based on your whole portfolio, not just within a single account. I'd never give an opinion without full info.

+1

 

[COcheesehead]

A old Fidelity rep who I no longer have, told me to track my performance against the portfolio (60/40, 50/50, etc) indexes they provide in the performance tab. If the difference in performance was not enough to justify the management fee, than do not use their managed services. That was 9 years ago. I have never performed worse than the benchmark, so there was never any justification to pay the fee.
Learn, implement and save yourself some bucks.

 

[skipro33]

Let's see if I can cut-n-paste from my computer screen some info from my Fidelity logon.
First is the performance:

Next is the 'positions' that Fidelity has me in;

And finally, asset allocation;

 

[COcheesehead]

Let's see if I can cut-n-paste from my computer screen some info from my Fidelity logon.
First is the performance:

Next is the 'positions' that Fidelity has me in;

And finally, asset allocation;

In your first link, go to market indexes and hit modify market indexes button. Pick the 60% equity portfolio and see how it compares to yours.

 

[skipro33]

Originally Posted by RunningBum

Re: your 60/40 split. You don't say how old you are, how far you are from withdrawing the funds, and most importantly, what you have outside of the IRA. Or is it just the $30K checking account, along with pension + SS which is meeting your needs? Your AA should be based on your whole portfolio, not just within a single account. I'd never give an opinion without full info.

+1

I think I did answer this but here it is all in one spot;
I'm 62
Won't need to draw funds until RMD (age 70 1/2)
I have a few smaller IRA's between me and DW totaling around $40K
Pension of $5600 a month with a 5% COLA (covers all my expenses easily)
SS starting this year of $2036 a month
Checking account with $30,000
Future inheritance of $20K to maybe $50K (I am caregiver, POA for my dad who has alzheimers and 87 years old with many health issues. I give him a couple years at most)
Real estate; home, free and clear valued at about $800,000
Full Medical included in my retirement.

I consider my IRA here money to fund long term health care while still living in my home and fun money once I reach RMD. I'll probably use it to fund various family expenses; grand kids college, wedding gifts, etc.

I am beginning to see that my AA can be more aggressive than 60/40. I really don't need the income, but then again, why be risky either?

 

[skipro33]

In your first link, go to market indexes and hit modify market indexes button. Pick the 60% equity portfolio and see how it compares to yours.

Here's the image. And thanks for showing me a new 'trick' for doing that!
Oh, and don't forget to add that 1% I am paying for Fidelity to manage this account. A difference of 2.66% YTD and 2.81% 1-Year.

 

[COcheesehead]

Here's the image. And thanks for showing me a new 'trick' for doing that!

So there’s your answer right there. You are paying for the privilege of doing worse.

As far as being more aggressive, I am of the thought of taking only as much risk as you need.

 

[pb4uski]

Way too many funds... and from the names I'm guessing that many are managed funds with higher expenses. Dump them all and buy a 60/40 balanced fund... you'll have at least a 1% head start.

 

[skipro33]

Here's a question;
I expanded Index Blend options and added S&P500 and Dow indexes to the chart. How come the 100% Stocks blend is so much less than either S&P or Dow?

 

[skipro33]

Way too many funds... and from the names I'm guessing that many are managed funds with higher expenses. Dump them all and buy a 60/40 balanced fund... you'll have at least a 1% head start.

Almost all are managed funds. When I called to cancel having them manage the account, I was told I needed to create a NEW rollover IRA, sell off the existing IRA and once in cash, transfer the funds to the new IRA. When I asked why they can't just drop off the management, I was told all those funds are propitiatory to customers in managed funds and not available for self investors. But even still, just liquidate their funds into cash so I can call my own allocation and funds within this account instead of creating a new account.

Hmm... Is that standard operating procedure in the industry? I'm beginning to think I need to pull out of Fidelity altogether and find another investment house.

 

[RunningBum]

So the IRA is the only account in which you hold any equities? Personally, I'd be mostly in equities then, probably 80/20, but you have to do what feels right to you. For $40K, the difference between 60/40 and 80/20 or 40/60 is $8K. Your pension dwarfs that, so it doesn't seem like extraordinary risk to me. It depends on whether you want to take a bit of a chance to be more generous with those gifts, or are happy with what you can do and just want to preserve that.

 

[ERD50]

So there’s your answer right there. You are paying for the privilege of doing worse. ....

Ouch!

....
As far as being more aggressive, I am of the thought of taking only as much risk as you need.

And though I'm personally comfortable with a more aggressive AA, I see 60/40 (or even 50/50 or 40/60) as just another choice, not better or worse. Below 40/60 though, history says you are taking a risk of too little growth. But even that might be OK for a low WR%, and if they understand that risk.

Way too many funds... and from the names I'm guessing that many are managed funds with higher expenses. Dump them all and buy a 60/40 balanced fund... you'll have at least a 1% head start.

Yep. And I think that's the big issue with many FAs. If they just bought 3 funds and held them, many people would be wondering what the heck they were paying them for. So they go complex to provide an illusion of 'working for their fee' and 'see, you don't know how to do this, you need a pro!'. But it may be counter-productive.

-ERD50

 

[braumeister]

Hmm... Is that standard operating procedure in the industry?

Not uncommon AFAIK. They make a distinction between managed accounts and unmanaged, and their internal software systems keep them separate.

I noticed that the first few funds in your list have very high expense ratios and poor performance over the last few years, so that's a really bad sign.

Still, I wouldn't give up on Fido, just get out of this arrangement.

As many others here have pointed out, Fido is not at all unique in having some good people and some poor ones.

 

[ERD50]

+1 to braumeister's post.

I checked the first three funds, holy cow, 1.49%, 2.68% and 1.11% expense ratios!

Fidelity is OK, but you don't need (that's an understatement!) their management'.

-ERD50

 

[TrvlBug]

+1 to braumeister's post.

I checked the first three funds, holy cow, 1.49%, 2.68% and 1.11% expense ratios!

Fidelity is OK, but you don't need (that's an understatement!) their management'.

-ERD50

I know this has been mentioned in other thread(s)...many of these fees are waived when Fidelity manages your account. Don't know which ones as I can't find my notes. Someone with more knowledge, please chime in.