Fidelity's portfolio advisory services, Yay or Nay?

I've come to the conclusion that I have neither the time nor the education to make well planned investment decisions. Does anyone use the Fidelity advisory service? I submitted a request for them to call me, I hope to setup a meeting to see what type of action their take and what their approach is.

Thoughts?

Reply to
dan
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I talked to them as well. It looked like a really good thing until I asked the guy behind the counter if he used it for his investments. He said he just manages his own. That's when I wasn't so sure anymore.

However, I think there's some amount of market timing that they do. They overweight/underweight sectors based on their internal research which is something that is a lot harder for an individual to do -- would require a lot of time and understanding of markets and government policies. Whether or not it pays off would be hard to say.

I did get the free report in which it recommended a portfolio consisting of about 2 dozen funds.

In my personal investing so far, I've tried to keep things a lot simpler dealing only with S&P500, EAFE and cash. But maybe that's why I need an expert to help out. :-)

One of the good things about the fund is that they don't charge loads (even if some of the funds they pick are loaded) and the total fees by funds are capped should they exceed a certain value. I can't remember the exact number, but you basically pay no more than about 1.75% or so (includes the fixed fee plus expenses of the funds used in the portfolio). However, with my current investments, my expense is probably closer to 0.1%.

It's still a toss-up for me. Perhaps someone else will shed light on their actual experience with this.

Anoop

Reply to
anoop

If you have an account with them you can just use the web based allocation recommendations using mutual funds.

I used the pay service once before. I can do that myself on any number of web based portfolio recommendations.

Reply to
PeterL

The personal advisors use the same computer program. However, the final step in the conmputer program, that is suggesting future investments, is a bit flakey in my opinion. A human gives better suggestions.

As your account grows, more and more fees are waived, including this service.

Reply to
rick++

If you keep to relatively fixed proportions of SP500, EAFE and cash, and rebalance periodically, that is all you really need. 60:30:10 and rebalance annually or even less often than that (I would argue every

2-3 years-- in gambling terms, you are 'running your winners' then).

I might substitute short term bond fund for cash (not necessarily right now though, as cash yields are above bond yields).

A (US) Total Market index fund would be better than an SP500 fund (in the long run) because there are distortions around membership in the SP500 fund. But it's not a big issue. SImilarly for a small cap fund.

There is (some) merit in a REIT fund but history shows REITs are highly cyclical, with a very long cycle (I think an average of 11-14 years). One should certainly never buy into REITs when they are trading at a premium to NAV (as they are now, pretty universally, I think). Also you probably own your own house and live in the US?* There is a correlation between the returns of US commercial real estate and house prices. And a percentage of REITs are apartment REITs, which have a much more obvious link.

So you could have an 'ideal' portfolio of the likes of:

- SP500 fund - 40%

- small cap 'value' fund (index, a lot of the so called 'value' funds are anything but) - 10%

- REITs - 10%

- International stocks (MSCI index) - 30%

- Cash or short term bond fund - 10%

If you are in a taxable account, this is all bollocks. You want tax managed funds, the minimum of trading or rebalancing, and the original suggested allocation is best.

As you get older, I would expect your total exposure to bonds to rise. One virtue of 'one decision' or lifestyle funds is that they do this for you.

It's *cost* that kills investor performance, over the long run. Cost and taxes.

  • from a personal finance point of view, I think most Americans should own their own home. *however* now is not the moment in most markets to be buying in. The US has had the biggest sustained housing price rise ever recorded (other than in the immediate post WWII area) and whilst the demographics of housing in the US are quite positive, it is very likely in most markets that prices will either fall, or go nowhere for an extended period of time.

The best analysis of it I saw (see Calculated Risk blog) was from the CEO of some major housebuilder. It was along the lines of housing slumps typically last 8-9 quarters, and this market peaked in July

2005. Which still leaves 3-4 quarters to go. That's a *normal* housing slump, and there are reasons to think this will be far more than normal (see Robert Shiller, Irrational Exuberance, SECOND Edition).
Reply to
darkness39

The "customer agreement" on Fidelity's website shows the total expense cap to be 1.85%.

Anoop

Reply to
anoop

I don't. I looked into buying early 2004 and decided it was a bit of a stretch. That combined with the "bubble talk" (which was only just beginning by then) and I talked myself out of it after having put a deposit down on a house. The stuff I read on the CEPR website made me decide it wasn't worth the risk. Since then, prices appreciated 30+% at their peak but have now started falling. That home is still about 30% over the price I was going to pay (according to estimates at zillow.com). This was in the Sacramento area in CA.

Anoop

Reply to
anoop

What does "cyclical" mean here? Most REITs are so young (as far as being traded on a stock exchange), that the statement above seems loaded.

As a sample point, the five REITs I own have all been traded over ten years. All have kept up with the S&P 500 or done better since the late 1980s (that's as far back as I can go with yahoo's charting). I propose that older REITs have been, historically, an excellent investment, for the long term of 20 years or so (just like most other stocks) but with the caveat that their history is very short indeed compared to most other categories of stock.

REITs were trading at record prices two years ago--and prices kept going up.

I think it imprudent to assume these prices will correct. It seems to me that, a few years ago when bond yields were low, for one a lot of people went looking for high yield stocks and found REITs. I can't be sure, but valuation of REITs may have changed forever.

They could correct. I'd just feel foolish insisting they will or will not.

Reply to
Elle

I understand the feeling. You might read Robert Shiller, Irrational Exuberance, SECOND edition, for a degree of comfort on this.

You might well have not lost your opportunity. Property slumps when they come tend to be long lived, and painful. Prices don't go down much (for a long while) but buyers dry up. Eventually someone gets desparate to sell.

The market is truly soft in many markets, I understand-- there was a piece in the LA Times about foreclosures in the Inland Empire this week (see Calculated Risk blog).

As negative equity spreads, there could be some opportunities. Watch for houses that have been on the market for a while-- you could bid down aggressively and get one.

Reply to
darkness39

Did a search on this and found a website:

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On there he has a paper evaluating the use of life cycle personal accounts for social security.

The last paragraph in that paper is as follows:

"But to say that there is a money machine in the stock market, that it can be tapped to yield great wealth without significant risk if one uses life-cycle investment methods, is a big mistake. The stock market is an uncertain place, and even if the risk is effectively managed over the life cycle, important uncertainty remains."

I thought this was particularly relevant to this discussion.

Anoop

Reply to
anoop

Good site. Thank you.

He was in particular referring to the proposal to provide private accounts as an alternative to social security. I don't want to get this thread closed, or kicked off this NG, by straying into that political zone.

So I'll go back to the financial planning aspect. If you read Zvi Bodie's book on personal financial planning, he makes a pretty persuasive case that there is no free lunch out there.

The only certain retirement income is to invest all of your savings in US TIPS (or a low cost index fund which tracks them).

To take on equities is to take on risk.

My view is:

  1. TIPS are fundamentally not very attractive at these real yields. You are paying a premium because TIPS aren't particularly liquid, and because of bond market conditions which are unlikely to pertain forever, and because the absolute safety of the TIPS is something very rare in the investment universe, and commands scarcity value.

(the equivalent British security, index linked gilts, has a similar high price/low real yield).

At some point, I expect the real yield of TIPS to rise again, and them to become attractive once again as investment instruments.

  1. most people don't and won' t have enough personal savings to be able to avoid all risk in investing, and still have enough to meet their retirement needs.

Those who do have that kind of money, probably can afford to gamble anyways ;-).

  1. Shiller's book is worth reading, because of what it says about real estate prices. The SECOND edition, I stress.

Markets periodically go into bubbles. Those who invest in those bubbles (and I have lots of retirement money invested in index funds in the late 90s, that is still under water), get hurt.

  1. I still recommend Bodi's book on personal investing quite highly, because no one else says that stuff.
Reply to
darkness39

It's been discussed here that the drawdown for a diversified portfolio in the first year of retirement is about 4%, to insure lasting one's lifetime. This means 25X your retirement needs (after taking other income into account, of course). What is the suggestion in a TIPs only plan? Seems like a 50X number would be needed. After paying tax on the return of both the 'yield' as well as the inflation portion, TIPs hardly keep up with inflation. I've never heard anyone else suggest a pure low-interest gov portfolio for the long run. Maybe there's a reason. (even a diversified portfolio of corporate bond funds would beat TIPs, by nearly 2X) JOE

Reply to
joetaxpayer

Plus, the inflation index (CPI or whatever) to which TIPs correlate cannot be said to match every, or even most, individuals' personal inflation rates.

There is nothing certain about TIPs, once one factors in one's personal, and highly unpredictable, inflation rate.

Reply to
Elle

I presume, buy a life annuity when you are 65: the Canadian and British 401k equivalents require that.

Seems like a 50X number

He's assuming tax deferred accounts. Yes you would need a substantial chunk of money.

The point is about safety of return. Bodie's point is that only TIPS guarantee a return. Every other asset class has the *potential* to do worse. Only TIPS guarantee your buying power.

The old point about past performance not guaranteeing future performance is seminal here. Broadly, you can grab higher performance, but only by taking on higher risk. And the returns of US equities since 1900 have been extraordinary, and are very unlikely to be repeated*.

*If you take a basket of the 12 top stockmarkets in the world in 1900, then the US has far outperformed all of them-- by something like 2% pa, compounded. So there is survivor bias, ie the US stock market is the top performing 'fund' amonst leading markets.

I think one can be decently bullish about the prospects for the US (I am) but think that PEs are unlikely to do what they did in the 1900s (ie more or less treble). So a major source of return is cut out.

Reply to
darkness39

There's a problem here: Although TIPS may guarantee a return, they do not defend against fluctuations in principal value. So that means you can't just invest in a TIPS fund and then cash it out at 65 -- if you do, there's the risk that interest rates will be high at that point and your principal won't buy as much of an annuity as you thought it would.

For example, the Vanguard TIPS fund went *down* in price by 2.85% during

2005 and down by another 3.12% during 2006. On the other hand, it went up in price by more than 12% during 2002--which suggests you'd be unhappy if you had cashed it in 2001.

Which means, I think, that if you're going to adopt this strategy, you need to buy individual TIPS that mature at the time when you expect to buy the annuity. Otherwise, you still aren't going to know how much money you'll have to spend on the annuity, not even after inflation.

Reply to
Andrew Koenig

Yes that is the strategy he is suggesting.

Reply to
darkness39

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