investing with Fidelity?

Question

I would like to invest $50.000 in mutual funds with fidelity.I am 27 years old and I want to invest for 3 years.Could anybody tell me what would be the best option for me?

Answer 1

I believe that you may have broken one of the rules of investing. That is investing based on something other than expected return. By choosing a certain company over all of the alternatives available you are not availing yourself of all available options and extremely limiting your potential returns. Fidelity does have some good offerings. They also have some bad offerings. One of my main critiques of Fidelity is that their funds are very very large. It is really difficult to get good results attempting to mananage 10 billions dollars of investments. What are you going to invest that much money in? Your options are very limited. 19 of their funds have greather than 10 billion in assets. Heck, I would not want to manage even 1 billion.

I think I might be able to suggest a better option. You decide. Open a brokerage account with Fidelity. They have excellent brokerage services. I use them. Instead of investing in Fidelity Mutual funds, put your money into closed end funds and index funds. Divide it into 10 piles of $5,000 each and place 5 piles in index funds and 5 piles in closed end funds.

What are the advantages of doing this? There are several.

Index funds have very low expense ratios and do not churn their holdings therefore there is very little capital gains that you will receive in year end distributions that you will have to pay taxes on. There are hundreds of index funds to choose from, and many have outperformed Fidelity funds. Here are a couple of my favorites. IWM and IWN. 5 year annual growth rates of 10% and 13% respectively. 75 of Fidelity funds have outperformed those averages and 275 funds have under performed those averages. So you have 1 chance in 5 of outperforming these indexes with Fidelity funds.

Closed end funds have a couple of advantage over open ended funds that can work to your advantage. 1. They have limited captialization. That is a set amount of money to invest. There is no inflow or outflow of capital for them to be concerned with. The largest is only $3.5 billion. There are only 75 larger than $1 billion. The other 550 are less than $1 billion in assets.

Many closed end funds have excellent long term records and here is the very best part of all. Many sell at a discount to net assets. It is like buying stocks on sale, as much as a 15% discount.

Here is a link to a site where you can check into both closed end funds and index funds. Make some comparisons.

Answer 2

I invest with Fidelity and I like their customer service. My Wife and I like the Fidelity Balanced Fund, because it averages 10% returns year over year and it is a no load mutual fund. You never want to invest in a mutual fund that has a load. Ever.

Since you are only investing for three years I would not use an IRA because you get penalized for early withdrawl.

I don't know why you are investing only for three years. A house maybe? But the longer you invest, especially with a diversified mutual fund the better your return will be.

Answer 3

Mutual funds are appropriate for some and the wrong investment for a growing number of people.

For me, I would NOT invest in mutual funds if it weren't for having a 401K.

Overall, Mutual funds are not good (once you're educated) and most people should not invest in mutual funds unless you have to (like if it were a requirement in a 401K).

Here's why.

First of all, mutual funds exist to take average person's money.

Second, mutual funds seem to be "happy" just to do better than the S&P index, since that's often the gauge. A monkey, yes monkey, can usually outpick most mutual funds. As was stated over 80% of the mutual funds out there can't even outperform the market. That's VERY SAD!

Third, mutual funds have embedded management fees in their costs. Most of these mgmt fees are 0.5% to 2% annually.

Fourth, most mutual funds exist not to earn you a lot of money, but are more interested in NOT "losing" you lots of money. That way you stay with them and they continue to collect their fees.

Fifth, mutual funds are not as liquid as one might think. If you're in mutual funds and a Bush talks in the morning and you call your broker to sell because the market is now tanking, the broker will gladly take your order, but the order will not be executed until the day is over and the negative impact is already priced into the fund.

Sixth, many mutual funds charge extra "fees" if you buy/sell their fund within a certain amount of time, meaning you must keep your money in the fund 90 days to 2 yrs before you're free from the fees (read the fine print on trying to get a withdrawal). These fees can be up to 3% or so of your money as well.

Seventh, mutual funds have to be in the market. So if the market is crashing or going down like it has between May and now, then the funds still have to be in the market and taking those losses too. With some practice, you can time your monies to avoid some of those losses (it'll take practice).

Convniced yet? Need more?

Eighth, mutual funds have to be pretty diversified and so if there are hot and cold sectors, they are probably in both the hot sectors and cold sectors. However, as an investor, you can buy into just the sectors you want, like metals, or housing, or energy, etc. or right now, Healthcare, Retail, and insurance!

Ninth, mutual funds are so big, they can only invest in certain companies. A small mutual fund with $10 billion in assets. 1% of that money is $100 million. How many companies are this big where $100 million investment isn't the whole company? Do you want to limit yourself to just those larger companies like microsoft, verizon, home depot, cisco, ebay which have been sideways for years? I think not.

A better way would be to buy ETFs (exchange traded funds) or holders. These trade like stocks, so are very liquid, and do not have the fees like the mutual funds. Further, you can buy/sell them as you wish. They represent sectors or indexes, so buying them gives you the same diversification as the sector/industry/index, but without the extra overhead!

See amex.com (american stock exchange) or ishares.com, or holders.com for more info.


You need to invest for yourself. If you can't, then sure, use mutual funds. But be aware of the shortcomings (and as you can see, there are many).

As for Fidelity, they're not too bad for beginning investors, but as you know more, you'll find other brokers to be much more helpful and in your corner. Fidelity has a big name and if you don't know the questions to ask, they're great!

Long story short, it depends on your goals. If you want to take the money and get a good start toward retirement, learn about investing and do it yourself. If you want to take the risk and be with 95% of the people who trust others to handle their money, go right ahead. It's your choice, your decision! Sorry for the lengthy response.

Let me know if you have further questions.

Hope that helps!

Answer 4

Don't use a mutual fund, they are too diluted, try buying stocks!

http://www.sharebuilder.com/