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

If you're looking to evaluate mutual funds, use morningstar. If you're looking for what to do going forward, read on.

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

Put another way, 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 about them) and you 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, at&t, 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, 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).


Let me know if you have further questions.

Best of luck!

Answer 2

I had this as my portfolio in my 401k

40% Overseas (FOSFX)
15% Low Priced Stock (FLPSX)
15% Real Estate (FRESX)
10% Fidelity Government Income (FGOVX)
10% Fidelity High Income (SPHIX)
10% Fidelity Contrafund (FCNTX)

I'm not a financial advisor but the above portfolio beat all the stock indices for 5 years between 1998 and 2003. I can't tell you how this portfolio did because I liquidated it in 2005.