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Should I close my fidelity professional managed account and continue to monitor and rebalance annually myself?

I'm 32-year-old female. I recently switched my IRA account to a managed account with services fee of .98% annually. My current position is aggressive growth. Dos. stock 58% For. stocks 28% Bond 8% Short term 5%. I'm considering opt out of the managed account because my account has decreased significantly (6%) in the last 4months since my switch. I've had this account for 8 years and never saw this amount of loss. Is it the market? or could I continue to manage it myself (only looking at my account on a yearly basis- what I'd done for the past 8 years)? Is it really beneficial to have fidelity and pay the fee with loss???

Sep 29, 2015 by Vie in  |  Flag
8 Answers  |  12 Followers
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Hi Vie! Since your position is aggressive growth, based on current market conditions, you can expect losses. This does not mean that the current management is poor, but seems to be more of a reflection of overall market conditions. Over the past 8 years, the market has experienced dramatic growth, so this correction must seem like a shock.

Don't confuse fees with the value of the services. If your current manager is providing advice to help you understand your risk tolerance and develop an appropriate asset allocation to move you toward your goals, then the fee may be very fair. If not, then you may want to look around for a planner who can work with you to create a plan to help you.

3 Comments   |  Flag   |  Sep 29, 2015 from River Hills, SC
Vie

Thanks for the response!

Flag |  Sep 29, 2015
Pam Horack, CFP®

Sure! Feel free to reach out if you have further questions.

Flag |  Sep 29, 2015 near River Hills, SC
Terrence D. Wittman, MBA

I would like to know what exactly is in your account you describe as aggressive yet has a Bond component. Also what is the Risk level of the account, or it's "BETA". Unfortunately people view "losses" in a down market as absolute when you have to consider that an actively managed account that has less of a loss than the market is performing better than the market, which would mean they are probably doing their job. Again, I don't have much other information to go on and I'm not a fan of Fidelity at all, but a roughly 2% better performance than the "market" in general is a win.

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Flag |  Sep 29, 2015 near Bloomingdale, IL

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Peter Cacioppo Level 16

It's the market., Many fee only advisors would not have you in bonds or short term, btw.

1 Comment   |  Flag   |  Sep 29, 2015 from La Jolla, CA
Vie

Thanks for your comment!

Flag |  Sep 29, 2015

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In fact, however, the fact that you were less in stocks than most aggressive investors will certainly have limited your losses in recent months. It is the market. I will caution you this - if you are an aggressive investor, but seeing your portfolio down by 6% or so troubles you so much - DO NOT manage the money yourself. It shows to me that you have not yet developed the kind of long term set it and forget it mentality that you need to be a successful investor. This is a very common run of the mill correction that should be happening at least once or twice every couple of years. Maybe it will get worse from here - if it does you need to be able to avoid reacting in fear and abandoning your investment strategy. Speak with your advisors, take their advice. If they are not available, and cannot explain what is going on, then find another advisor rather than do it yourself.

View all 6 Comments   |  Flag   |  Sep 29, 2015 from Bridgewater, NJ
Colin

Vie if you've lost $23k on a 6% decline, your portfolio value must be well above average for someone your age. I'm only 2 years older than you and have "lost" (because it's not a loss til you sell) $37k. But this is just a normal correction and you have to weather the ups & downs. You're playing the long term and need to ride things out when things are bad (or look at this as a chance to buy more shares at a discount). If you have had an account for 8 years, you must have just started just after the drop in 2008 and got in at market lows...thus it's easy to think that you should make a switch because you haven't seen losses yet but you are now that it's professionally managed. Again, normal correction and if you don't feel you have the financial acumen to do it yourself, then professionally managed may be best for you...just make sure you feel comfortable with your advisor. I myself do not prefer the cost associated with professionally managed services nor like having it out of my control, but that's because I feel I have the knowledge. Trust me, I'm weathering the same storm with you and it's gut wrenching, but you're not retiring in 5 years but 30. You'll see this several times during that period. Again, based on the info you provided, it sounds like you're well ahead of many of your peers in savings...keep steady & constant. Good luck

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Flag |  Sep 30, 2015 near Oak Creek, WI
Vie

Thanks for the supportive words. I was fortunate when I landed my first "real" job at 23 my boss was a financial advisor in his previous career. He really helped me understand finances and the importance of starting early for retirement plus the company at that time contributed 10% of salary to 403b. I've since left that company and lost my dear friend and boss. I've tried studying up on the market by doing the Investopedia 101 and reading some literature but I had to be honest with myself that I needed professional help. I don't mind paying for professional help as long as it's beneficial. I would be naive to think that big institutions truly have my best interest at heart, that's why I posted my question...And I truly appreciate people taking the time to comment!

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Flag |  Sep 30, 2015

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Corey Level 2

Great question Vie - thanks for asking too, because there may be others that are thinking the same thing.

I would most certainly agree with Pam's response - there is a higher degree of uncertainty in the markets right now and that can have an adverse affect in the short term.

What I would expand on would be these following points:

  • Remember that your Individual Retirement Account/Agreement (IRA) is a long term vehicle. A 6% decline in a portfolio may be an opportunity to buy at a 6% discount.
  • Perspective is important and making sure "perspective" is inline with your expectations and your goals. In late 2011, there was a -19.39% drawdown in the market (S&P 500).
  • Define what's important to you: spending time on your hobbies, with your family, you career. Then, take that definition into consideration when deciding how valuable a service can be, opposed to just the hard dollar cost. What do you get out of it? Does paying a fee of .98% --- $98 on a $10,000 account or $980 on a $100,000 --- allow you to spend more time doing the things you love to do without having to become immersed in the subject you may not have much interest in?

You may find more value in working with an in-person, local financial planner or fee-only advisor that helps you in defining these attributes. They may be able to provide education on topics that you may not be familiar with or guidance in areas of your own expertise. For example there are advisors that work with newly-graduated med school students in their first job as a doctor; those doctors are experts but that advisor is familiar with options available for their specific situation.

Ultimately, you want to be comfortable with your investments and understand the capabilities of the services you use. Nobody can predict the future but having a plan in place of what to do with the unexpected is a great starting point!

I hope this was helpful and thanks again for your question.

View all 5 Comments   |  Flag   |  Sep 29, 2015
Robert Wander, CFP®

Secondly, it may seem like just verbiage but I think it's worth noting that unless and until you sell out of your positions, there is no "loss", it's just a temporary decline. There's a well-known author in the investment industry, Nick Murray, some of whose books are geared towards investors, as opposed to advisors, which you might find of interest but keep in mind the "deal" you make owning equities is the possibility of long-term appreciation in return for short-term volatility

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Flag |  Sep 29, 2015 near Manhattan, NY
Colin

Great point Robert. A "loss" is only a loss if you lock it in by selling.

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Flag |  Sep 30, 2015 near Oak Creek, WI

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Thanks for posting the question a lot of retirement account holders are only stewing over, Vie. Your asset allocation is one of the very few I've seen in my industry experience that has a fixed income or bond component in an aggressive account. Even if that component is junk bonds, that still doesn't make sense to me. An additional question I have is, for .95% or 95 basis points as its called in our business, how much communication have you had FROM Fidelity? When you called them, did you get a real, believable answer to your questions? If you are nervous with your portfolio down 6%, a lot of which I would attribute to market activity, does that figure fall within the range that Fidelity told you to expect based on their allocation models when the account was opened? It would be interesting to see a breakdown of the performance of each of the asset classes you own as the S&P 500 is not yet down 6% year to date. I've got some professional questions about the underlying assumptions your portfolio is based on, but they are too lengthy to cover here. As for you managing the portfolio on your own, I can't/won't answer that. You can, of course, do that. One alternative would be to buy index funds. But all index funds are not created equally. Even the S&P 500 Index funds are built differently while using the same benchmark for performance reporting. It takes experience to discern the differences among index funds and know which indexes to be in, when. I'll leave you with one last thought: mutual funds can quote track records of past performance. What they can't take into consideration when they give out numbers is how many investors stayed in the funds for the entire period being presented. Retail investors have a predisposition for getting in and out of markets at the wrong times. Is this one of them for you? Hope this has given you some thoughts to ponder.

Comment   |  Flag   |  Sep 30, 2015

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Vie,

Among the fine number of answers here you may also benefit from a little more one on one time with an advisor if you have one dedicated to you. In times of great stress in the markets it is important to have someone who looks at your portfolio to help you understand the Fee's you are paying, the performance you are getting, the appropriateness of the specific investments you are holding and address how the portfolio is doing and has done in other times when the markets where experiencing great stress.

Performance vs. bench marks are certainly one way to look at this. Also understanding some more specific Modern Portfolio Theory Statistics and how your portfolio stacks up can give you a better feel on how you are doing in a given market environment. Market environments change and rarely repeat themselves in exact form but understanding the volatility of your portfolio vs. the markets can be key to your understanding the value of the fee's you are paying.

I for one tend to use bench marks to understand the degree of risk I am taking. Smoother returns with smaller draw downs on portfolios vs. the markets are areas that may help you understand what you are paying for. I would revisit your risk profile becasue as an aggressive investor experiencing a 6% pull back that is not realized in your portfolio is not typically a reason to make a change but often more of an opportunity to assess your true tolerance for market fluctuations and to make sure how you feel about down markets is in alignment with your real profile as an investor.

Comment   |  Flag   |  Sep 30, 2015

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Richard P Taylor Level 17

Vie, the market is your answer. It has not been very good since you made the change. That has nothing to do with the "management" of the account. I would encourage you to leave it as is though. Particularly at your age, you have a very long time horizon. The biggest long term issue for investors is emotions. If you begin to manage it yourself, you undoubtedly will make emotional decisions that will cost you much more than a short term market fluctuation. You are doing just fine. Leave it as is and you'll wake up one day many years from now very happy.

Comment   |  Flag   |  Oct 01, 2015

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Vie, if you are at Fidelity, you are probably all in funds rather than actual stocks or actual bonds. Funds are derivative investments and as such can swing more than the actual market. This was a particular concern recently in August with the pauses in trading for ETFs. The energy sector is represented in the S&P 500 and has been declining and extremely volatile this year, affecting overall index and fund performance.

The rate of your decline is less than that for the actual S&P 500 index, suggesting that your financial manager is dampening volatility by holding bonds and cash. As I said real bonds may pose less short term risk of price swings than do the fund proxies. As you grow your balances you can think about whether you move to hold some stocks and actual bonds, to avoid fund declines driven by algorithm led market dips.

You can also think about tax diversification. That is, you could explore a partial Roth conversion of IRA assets which may be at depressed valuations, to pass less tax than you would have earlier to push them into the tax free Roth category. Since you are young you would greatly benefit from building up Roth IRA balances, for tax free treatment after 5 years and into retirement. Penalties do apply so research this before moving forward.

Comment   |  Flag   |  Oct 06, 2015

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