Financial institution or not? When to dump?

Question

I've been managing my money for quite some time and have done very well. I realized that I may not be making wise choices with mutual funds and gave $80K to Fidelity to manage while I manage the rest of my accounts with Fidelity. This was 4 months ago. My rollover has since lost 10k. Is it time to dump or is this the stock market? None of my other investments have lost this much. This is 10 grand in 4 months... I'm ready to call them and say "we're done, I'll do it" but I'm not sure if they've changed my funds to give me a better turnover whereas I've left my money in my other funds for years. Am I missing something?

clarification, I know that they have changed all my funds in my rollover which they are now managing but is this loss temporary? It seems WAY too great of a loss to make a turnaround of 10,000 to at least break even...

Answer 1

With respect to the market in general, there's been a good-sized pullback from May to the current period. Those stocks which have suffered most are the ones which have had the largest amount of growth (precious metals, emerging markets, etc.). Many funds not only lost all of their gains Jan-Apr, but many actually dipped into negative YTD territory.

So you have to ask yourself: is this money you have in Fidelity on a permanent downward trend or an overdue correction? Are your losses due to the possibility that your investments at Fidelity were focused on the highest growth (and therefore most volatile and overdue for correction) funds? What are the long-term performance records of the funds you've chosen (4 months is a drop in the bucket of time)?

Basically, you can't just look at gains and losses. You have to look specifically at the funds you've chosen, and balance them against your personal risk tolerance. It's very likely that with the right (or wrong) combination of funds, you could have lost as much with T Rowe Price, Vanguard, Bridgeway or any number of fund families. If you don't believe me, look at their Websites and check the fund performances. Red ink all over the place.

Don't dump funds just because they're going down or buy them just because they're going up. How do you know you're not buying at the top or selling at the bottom? You'll inevitably wind up buying high and selling low. Understand why you're buying into a fund and if the circumstances that made you buy them still make sense, stick with them. If circumstances have changed, that's the time to re-evaluate and think about selling. Also think about selling if the assumptions you made originally were wrong.

Answer 2

Here are some basics of investment management that everyone should be aware of:

1. The "market return" (Dow, S&P, etc) is average. It is the average of all stocks traded. This means that half the people "beat the market", and half "don't beat the market".. This means that a lot of professional managers can not beat the market, because by definition the market is average - and if they did, the market return would just be that much higher.

2. There is a relationship between the expected return of a particular stock, and the risk (volatility). This means the stocks with the highest possible return may spike up and down the fastest. Think Las Vegas - you can win gradually at Blackjack, or you can put it all on Red #1 and hope for a winner. Then think about stock in a gold mine, etc...

3. All good money managers understand their client's investment objectives, and have clear benchmarks that they manage against. If a client's investment objective is "match the market return", the benchmark might be the S&P 500. If the objective is "match the small company growth average" it might be the average of 50 small growth firms.

4. Your investment return equals the return of your investments minus any trading fees/transactional costs. Never forget to include these costs!

5. All things equal, the more you trade, the greater trading fees you incur, and the lower your expected return. The only certainty in investing is the cost of trading - the fee you pay the broker/money manager, and the transactional costs of the market "middleman" who sells stock for a few pennies more than the current price, and buys stock for a few pennies less.

With these basics, you're ready to talk to your money manager. Ask what your investment objective is, and how the benchmark performed. 10% is a big hit to take, but if your objective was "aggressive growth", and the "aggressive growth" benchmark fell 20%, you're in good shape - you just need to have a conversation about which risk vs. expected return preferrence is right for you. Also ask about the fees, and how actively they trade. If they buy and see 20 stocks a day, that typically isn't good because all those pennies add up (even on $70k). And really good money managers, the guys who can regularly beat the market or their benchmarks, will charge higher fees because they are that good and they're able to. This is capitalism at its best.

If you're not comfortable, or if you're getting the runaround, change to a new manager. You have enough assets that you should receive preferred treatment - make sure the person managing your money isn't younger than you. Some of these companies put 23 year olds in charge of accounts - don't deal with them.

Answer 3

You can find out whether the loss is due to the market (the price of the assets dropped) to the transactions. Your contacts at Fidelity should be able to help you figure that our if you are not able to figure that out from your statements.
If it turns out, what I expect, that the loss is mainly due to the market currently, pulling out of the strategy (whatever it is) is a bad idea. The good investors, the ones that make money over the longer periods are doing the opposite when there is a market drop. In terms of whehter F. specifically are good for you there will never be a better way to figure out but to try to learn and research what the performance record of diffrent institutions are (mutual fund companies - like F., but also independant advisors, money managers, etc.). Learn to identify good performance (morningstar.com - just an idea), learn what the players are (look for investment advisors or advisers, monye managers, etc). Chose the onest that have most consistent resutls rahter than greatest gains.

Answer 4

I am an administrative assistant to a Certified Financial Planner. You may want to consider seeing an independent financial adviser; one who is fee based rather than fully commissioned because they seem not to lean toward the companies that compensate them the best. A professional can advise on when to lean toward the bond market, international market, stock market, etc. Being well diversified is key. P.S. You oferred me some advice that was very helpful the other day. Thank you.

Answer 5

Many of my customers used to be Fidelity Customers.

Why don't I help you for FREE get your $10,000.00 back?

Top 3 Answerer in Business & Finance. (Vote for me)