Portfolio Check: Do You Need Investment Management Help?

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I received a thought-provoking comment last week on my Fidelity Portfolio Advisory Service review. Since this post is a couple months old by now, I doubt most readers saw it. After reading it, my first guess was that somehow the visitor was interested about Fidelity PAS and also read up about my own investing activities.

Even thought the comment wasn’t blatantly baised, on a gut instinct, I checked the IP. As I suspected, the visitor came from a Fidelity Investments internet domain. Still, that doesn’t mean the person is necessarily wrong, just most likely works for Fidelity. 🙂

Anyhow, the comment from “Ryan”:

I would ask yourself why you were “stuck” in cash and missed the market rally. Was it because you were emotionally involved? Trying to time the market and got in/out at the wrong time? Where you frozen to the point where you didn’t know what to do? Those kind of mistakes can REALLY hurt a portfolio’s return in the long run. I would say if you are ready to commit to a discipled strategy and stick to your asset allocation & rebalancing plan, you are ready to manage the portfolio on your own. You can also think about taking 10% of your portfolio to invest in individual stocks to see if you can get lucky with a few and boost your overall return. But you also have to be prepared to do your homework (jim cramer says an hour a week per stock, so thats 10 hr/week) on those stocks. If you are honest with yourself and don’t think you will have the time, expertise, or interest to keep up with the management of your portfolio, best to have someone do it for you whether it be through actively managed funds or professional management.

I both agree and disagree with parts of this comment.

Yes, I agree that it is one thing to set up and asset allocation and re-balancing plan, and it is another to execute it in times of uncertainty and market turmoil. This is your family’s future. Right now, with the S&P 500 at 1200, it would be good to look back over the last couple of years and see if you kept your stock/bond ratio at your desired targets when the markets were doing much worse. We you unsure? Scared to pull the trigger? Wanted the economy to get “just a bit better” before jumping back in?

However, I don’t agree that if you did have problems, the solution is “actively managed funds or professional management”. Well, not exactly. Why not go back to something simple and low-cost, like the Vanguard Target Retirement Funds? You will receive the power of passive investment into thousands of companies representing every industry around the world. You’ll also be invested in high-quality investment grade bonds from the US government, US agencies, and strong corporations. And you don’t have to worry about rebalancing, because they will do it for you. All at a rock bottom price of about 0.20% of assets annually ($20 a year for every $10,000 invested).

Take VTIVX, the fund for folks retiring around 2045. Want an IRA? Set up automatic investments into VTIVX. Got more to spare from the paycheck? Set up a automatic investment in a taxable account? Got a bonus? Throw it into VTIVX or similar. Scared? Just sit tight, VTIVX will rebalance for you. Don’t sell. Don’t buy anything else. Inaction is actually in this case. No, it won’t be perfect, but it will be a lot better that most of the other options out there. If you had trouble recently, perhaps it’s time to go back to simplicity?

In any case, there is no way I’d pay 1.74% in annual fees to Fidelity to manage my portfolio. Such crazy-high fees can also REALLY hurt a portfolios return, like facing a 50 mph headwind. I’d choose a Vanguard Target Retirement fund of comparable allocation over a 15+ year period vs. any Fidelity PAS portfolio any day of the week and twice on Sunday.

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  1. “You’ll also be invested in high-quality investment grade bonds from the US government, US agencies…”

    That statement is becoming more of a joke every day….”high-quality investment grade bonds from the US government”.

  2. is investing in a US gov’t bond somehow like paying yourself? tax money in, return on investment back out… of course you get to pay taxes on the money earned, so its a downward spiral…

  3. Great post! I agree with your position and am glad you did some good sleuthing for us.

  4. It’s very surprising that someone from fidelity is posting to this blog without disclosing who they work for. I wonder if the person’s boss knows about it.

  5. Look up Fidelity at the FINRA BrokerCheck webpage (see http://brokercheck.finra.org/Support/TermsAndConditions.aspx) and SEC’s Investment Adviser Public Disclosure webpage (see http://adviserinfo.sec.gov/IAPD/Content/Search/iapd_OrgSearch.aspx). After reading Fidelity’s reports, you may decide that you don’t want anything to do with them. You’ll notice regulatory events and arbitration results in connection with Fidelity from FINRA. From the SEC, you’ll notice Fidelity’s disciplinary history.

  6. Yes, investing in a target retirement does seem like common sense doesn’t it? Most of my money is in 2045, thought I hope to retire around 2040. The real question is do you want to guarantee that you beat 60-70%* of the people over the next couple decades, or do you want to gamble by investing aggressively instead.

    Be careful though, Vanguard might see this post praising them and decide to threaten you or shut down your site.

    *I have no idea if this is the real percentage

  7. On the internet no one knows you’re hyping your own service, unless they check.
    1.74% is only a lot if you think about it.

  8. Jonathan,

    I loved your post on asset allocation and was hoping you could do a series of post on retirement scenarios. Also review any good retirement calculators. I have not found any good calculators yet which takes different inputs for taxable and non-table investments, allows one to enter income needed in retirement, customized inflation rates during earning and non-earning years and so on.

  9. Jonathan, how can you check the IP? how did you see the guy came from Fidelity?

  10. My blog software (WordPress) automatically logs the IP of every commenter. This way it can also mark spam and ban abusive visitors.

  11. Thank you Jonathan.

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