Portfolio Check: Do You Need Investment Management Help?

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.