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Do you feel there is any need for a retirement fund that's managed by an investment group?

We are concerned by the fees, (.967% of assets), and we have experienced poor results over the course of the year. This was my wife's 401K that we converted to an IRA with Fidelity. We are invested very conservatively, 20% only in equities, the rest is in fixed income. Yet we've gotten unexpected loses. We are only about 5 years from retirement. What are our alternatives?

Sep 26, 2013 by Tom from Dunellen, NJ in  |  Flag
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3 votes

Tom, Hi, seems we are neighbors. Well this is difficult to answer. The fee by itself is not necessarily bad. The manager needs to be paid. Hopefully he does a lot more for you than just manage assets - he should be helping plan retirement cash flows, distribution plan, helping you with much more than just investing.

As far as investments, it has been a difficult year for fixed income. There is continued risk going forward that increasing interest rates may cause losses in this sector. But the potential losses on equities are even greater. You can say "I should have had more exposure to equities" - but that is only true with 20/20 hindsight that equities did not collapse. It is a fine line for a manager to walk.

The question of whether you should pay a manager comes down to "what will you do with the money on your own?" Do you have a sound plan for the money in this very difficult environment? If you would rather be more in stocks, that is a conversation you should have with the advisor - even retiring soon you might be able to afford some more risk in the portfolio (though this depends on a host of factors).

In summary, I would encourage you not to decide on the advisors merits based solely on this years investment performance, but how he answers your questions about what is happening (including questions about the potential impact of rising rates on your portfolio) and how well he helps you with your other (non-investment) needs. Based on the bigger picture, you can decide if he is worth keeping or not.

Good luck!

1 Comment   |  Flag   |  Sep 26, 2013 from Bridgewater, NJ
James D. Kinney, CFP®

Tom, lastly (and selfishly) if you would like a second opinion, look me up! I am right down the road from you.

Flag |  Oct 03, 2013 near Bridgewater, NJ

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2 votes

Tom -

Your question has a lot of facets that need to be addressed. First and foremost, I am a professional, fee-only advisor, so I want to disclose that before I answer your question. Have you spoken to your current advisor about your concerns? With such a conservative allocation, your portfolio is very much exposed to interest rate risk via the fixed income investments. After years of declining rates, interest finally started to tick back up this year from their historical lows. This rise in interest rates has a negative impact on fixed income prices, likely resulting in the paper loss you are experiencing in your portfolio. The most important question to ask is if this allocation is appropriate for the long-term needs of you and your wife. Second, a year is not a very long time at all from a perspective of evaluating performance. Both the equity and fixed income markets move through various cycles, some good and some bad. Currently, the environment does not favor fixed income. Lastly, consider other values your advisor might be providing through financial planning, etc. Bottom line, you need to be comfortable with the overall value you are receiving from your advisor.

Brian Pinkston, CFA, CFP®, AIF, Financial Advisor, Anchorage, AK

Comment   |  Flag   |  Sep 26, 2013 from Anchorage, AK

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2 votes

I would encourage you to talk to your advisor or if you don't have the confidence in your advisor any longer, search for someone new that can take a look at your portfolio. I would recommend a fee-only advisor.

As far as your performance goes, a lot of the negative performance, I'm guessing, has probably come in the last couple of months if you are indeed in a 20/80 mix of equities and fixed income. The fixed income market has experienced a decline of late and the reason for it has been a quick rise in interest rates. When interest rates go up, bond values go down.

The tricky thing about right now is that bonds are riskier than they have been in a while and the stock market is right near its all time high, so it is important to make sure your allocation is setup to be diversified so you are not too exposed to any of the risks inherent in stocks, bonds, etc...

Comment   |  Flag   |  Sep 26, 2013 from St. Louis, MO

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2 votes

My suggestion to you would be to seek out a reputable, local, CFP (Certified Financial Planner). Most planners work on either a fee basis, commission basis, or a combination of both. As such, I'd suggest that at your age (assuming you're in your early 60's?) that a "packaged" approach such as you're in might not be meeting your goals or risk tolerance.

A CFP who charges a fee might be the best investment you've ever made at the end of the day. I charge either an hourly rate, a set fee for a financial plan, or, a percentage of "assets under management", depending on the client and his/her needs or desires.

Best of Luck, and feel free to reply if your question has not been answered here.


Comment   |  Flag   |  Sep 26, 2013 from Springfield, MO

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1 vote
Rich Winer Level 20

Tom, I'm assuming that the reason why you are unhappy with your returns this year is because you have only 20% in equities (which are up substantially this year) and fixed income, which has done lousy due to rising interest rates, fears about the Fed tapering its bond buying program and concerns that interest rates may continue to rise over coming years. If the majority of your money is in fixed income and money market funds, you are probably about flat for the year and perhaps lost money. So what do you do?

Going forward, you are going to want to work with an investment advisor who can help you grow your money conservatively, most likely in a rising interest rate environment. In my portfolios, we are using tactical fixed income strategies we believe can do well in a rising rate environment (i.e. long/short fixed income funds, floating rate funds, flexible and tactical fixed income funds, etc.). We also use tactical strategies that allow us to adjust our allocation in accordance with market conditions, allowing us to keep more money in stocks when they are doing well and take appropriate, protective action when necessary. If you can find a local advisor who can do this for you, great. If not, we work with individuals throughout the country and can help you meet your investments goals in a comfortable manner. To learn more, please visit our website at www.winerwealth.com (specifically the section on our Advance and Protect Investment Strategies). Feel free to contact me through this website or at rich@winerwealth.com if you have additional questions.

Comment   |  Flag   |  Sep 26, 2013 from Woodland Hills, CA

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1 vote
Alex Bentley Level 18

Your fees are slightly high but not outrageously so. You have not mentioned if you own any mutual funds or ETFs. If so your total fees are higher. I like to see fees for funds plus the fee to your advisor to be in total under 1%. Without knowing your specific situation, a typical couple in your age range would have a higher allocation to equities. So yes I think you both need to look into a lower fee situation and take another look at your asset allocation.

Comment   |  Flag   |  Sep 26, 2013 from Pacific Palisades, CA

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1 vote

Good afternoon Tom, and thank you for your question. As a former Fidelity employee, I am very familiar with their product line up. You can have your plan with Fidelity in two ways, Fidelity can be just a platform form the plan, where you have an outside TPA doing record keeping and your Employer might hire and outside advisor to help you with you investment options or Fidelity can be a record keeper as well. In that situation you typically have a phone number of a fidelity team that supports the plan, that you can call in to get some help with your investment choices at no cost to you. Here is a phone number for you to call to find out 800-557-1900 The 0.98% fee is not to high but check to see if your plan offers you index funds as a choice. They would be a lot less expensive way to invest. I would agree with other advise you already received about hiring a fee based planner to help you with your investments,create a proper asset allocation. Fixed income has been very volatile this year and it will continue to be that way, because of the rising interest rates. Your planner can help you identify the best choice out of whats available in your plan. I hope this helps If you have any questions please don't hesitate to ask Sincerely Michael

Comment   |  Flag   |  Sep 26, 2013 from Farmington, CT

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1 vote

Hi Tom! You have inadvertently touched on a point of confusion within the financial industry: exactly who are you dealing with? Opinions will vary, but I'll give you my (very simplistic) take on this. Wealth managers focus on just that - managing and growing your money. Stock brokers are there to sell you a product. Portfolio managers are focused on investing according to a stated and agreed to goal. Financial Planners help you determine what you want out of life and then help you find a way to fund your goals. So definitely take time to talk to someone who is a financial planner, then determine which of the other services you may need.

I agree with my colleagues that your investment mix may be skewed. Bonds have the reputation of being a "safe" investment, but that is incorrect. They carry a variety of risks, some of which are opposite of stocks. Definitely get someone to look at your portfolio with you. And don't be afraid of a 1% fee. You should consider this the cost of advice and service. Studies have shown that people using financial planners have increased returns over those who do not, and when you are talking about your retirement, you don't want to go it alone. Good luck to you!

1 Comment   |  Flag   |  Sep 27, 2013 from River Hills, SC
Michael Steven Greenberg, CFP®

Well put. I like your explanation of stockbroker, portfolio manager and financial planner

Flag |  Oct 03, 2013 near Delray Beach, FL

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0 votes

Tom, In answer to your question about the fees…it is only expensive in the absence of value. If you don’t feel this person is earning his/her fee, you need to find someone who is.

Conventional thinking has been that fixed income is the safe place to put your money. I, and many of my colleagues believe that we are nearing the end of a 30 year bull market, and that interest rates will rise, causing the prices of bonds to fall. This could be very damaging to people like you, and those already in retirement that have large percentages of their portfolio in fixed income. Your portfolio has likely fallen because of that reason.

So what is a person to do? This difficult question in this difficult time must be answered on an individual basis. I suggest you search for a qualified financial professional in your area, preferably a CFP® to help guide you. I’ll give you some excellent possible directions, but I suggest you do some research on your own, and develop, at least in your head, a strategy. This way, as you interview financial advisors, you have some idea if the strategy that makes sense to you is similar to the path they want to take you. And if they have other fresh ideas, it won’t just be gobbledygook; you will have some notion if you think they are smart. I, myself, don’t claim to be smart; I just listen to smart people.

As I mentioned, I believe we are entering a rising interest rate environment. We are on the eve of a possible government shutdown, which will surely raise interest rates today, but that is event driven, and I would expect that as this particular crisis solves itself interest rates will fall. It affects market timing; there will always be something there, but I am talking more of long term trends. One way to mitigate fluctuations in this long term environment would be to invest is shorter term duration bonds. High yield bonds, though riskier, are bonds that often track with the equity market. There are also TIPS.

A bond alternative might be to invest in equity strategies that are concentrated in larger company stocks that pay high dividends. Though invested in equities with all its risks, you might be able to get north of 4% in dividends.

Be aware also, while there are strong inflationary pressures taking place, there also some strong deflationary pressures. I always want my clients to be in a well balanced, well diversified portfolio. just because while I have convictions does not mean the market won't be unpredictable. You need to be prepared for any scenario.

Comment   |  Flag   |  Sep 30, 2013 from Delray Beach, FL

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