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

[dex]

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

Great analysis.

 

[FinanceDude]

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]

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]

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]

. . . 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]

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]

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]

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]

...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]

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

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.

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

 

[Grep]

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.

 

[travelover]

.....................

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.

 

[Kabekew]

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.

 

[samclem]

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!

 

[haha]

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

 

[Bestwifeever]

Kabekew, you came, you shared, you got feedback--and you're doing what you feel comfortable with. Can't argue with that!

 

[samclem]

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).

 

[haha]

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

 

[Grep]

It's of no matter, but I'm giving up too.

 

[simple girl]

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.)

 

[clifp]

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.

 

[FinanceDude]

I'd ask them for a lower fee. Most firms can lower the fee if they want to......

 

[Kabekew]

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!

 

[dex]

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.

 

[FinanceDude]

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.......