My nephew recently started working at Fidelity and will have access to their full family of funds for his 401K. He is 26 yo and is working in a backoffice position, with little investment knowledge. I am not very knowledgeable about the Fidelity's family of funds, but I wanted to try to give him some recommendations on creating an 80/20 portfolio. I know the Contra Fund and Low Priced Stock funds are good funds, but thats about it. Can anyone provide some recommendations for creating a diversified port for someone in his circumstances?
Thanks!
Comments
The point is that your nephew has a lot more funds open to him than people here are likely to be aware of. (I am aware of the two funds above, which is why I mentioned them - FINSX appears to be available at the retail level via WellsTrade, and a clone of FSAEX is available via Fidelity's annuities; but there's a whole slew of fund Fidelity has that I don't know about, and could possibly be better than their somewhat uninspired retail offerings.)
I have above 4 funds in my Fidelity based 403(b) account.
I think he's limited to their own funds. Guess they want them eating their own cooking which seems reasonable to me. After all, I look for fund managers to be invested in their own funds.
Thanks for the inputs guys. I'll try to work something up this weekend and post it up for critique.
David
Fund Name Symbol Subclass Distribution
FID CONTRAFUND K FCNKX LARGE CAP 10
SPTN 500 INDEX INST FXSIX LARGE CAP 10
SPTN TOT MKT IDX ADV FSTVX LARGE CAP 10
FID LOW PRICED STK K FLPKX MID CAP 10
FID SM CAP DISCOVERY FSCRX SMALL CAP 10
FID EMERGING ASIA FSEAX INTL 10
SPTN INTL INDEX ADV FSIVX INTL 10
FID REAL ESTATE INC FRIFX SPEC 5
FID SEL GOLD FSAGX SPEC 5
FID INFLAT PROT BOND FINPX INCOME 5
FID NEW MARKETS INC FNMIX INCOME 5
FID STRATEGIC INCOME FSICX INCOME 5
SPTN US BOND IDX IS FXSTX INCOME 5
100
I am surprised with the offering, as to the limits.
Just popped in for a minute tonight; but there will be overlap (it appears from first glance) with a few of these funds.
The benefit of overlap, however, is that some managers will be better moving in and out of certain areas, so one gets the benefit of the blended returns from similar funds. I don't find the overlap to be a problem.
Lastly, and knowing he may not have extra monies available at this time; is to considerr adding a Roth IRA. Along with this thought is that he will get a reduction in his taxable gross income with the 401k and be dollar cost averaging these monies. Will he receive a "match" in the 401k?
I'll be back; and I am sure others will comment, too.
Regards,
Catch
I suspect all fixed-income investments have become a risky asset.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Worried minds think alike. Adhering to the quaint old guideline of stocks/bonds mix according to age would be 40/60 but feel more comfortable with 35/65 or even 30/70.
But dislike bond exposure at this juncture point for the reasons above. A rather sticky wicket allocating a majority of assets to a credit market that offers a negative real return
on most anything that addresses the interest rate risk (shorter term higher credit qualities.) I/we restructured the entire fixed income side over a year ago, in hindsight over a year early. Fidelity holdings are floating rate, short term muni, New Markets.
Also RPHYX, RNSIX which I was introduced to here and much thanks for that. The remainder of long-only bond funds were rolled over into a couple multi-asset strategies launched by Loomis Sayles and Doubleline employing complex long-short derivative strategies across currency, commodity, stock and bond markets. Apparently too complex. The Loomis Sayles fund
managed (...) to get wrong-footed whipsawed daily with a steadily dwindling NAV in both up and down markets plus no yield (MARYX, don't go there.) Bye-bye, rolled into RNSIX which continues on quite a roll in up, down or sideways markets, don't ask me how, now 20% of assets, its three separately managed subportfolios are a comfort factor for an outsized position. I'm aware of the overconfidence/hubris factor that afflicts fund managers who consistently find everything breaking their way until not, see Bill Miller,
Ken Heebner and the alphabeta bet, confusing one for the other, alpha and beta. The Doubleline Multi-Asset (DMLIX) continues to break even after a year, no more nor less with scant yield, basically a hedge fund for the 99% mom/pop retail investor with the same dismal performance as the pricier high net worth 1% varieties, commiseration knows no class.
The accumulation phase ended with retirement nearly a decade ago, capital preservation is the goal. Long term wind-at-back bond fund complacency will end with surpise and shock in the sort of interest rate rise exceeding all forecast guesstimations by hundreds of basis points the likes of which bankrupted Orange County in the mid-'Nineties. Amnesia is not a strategy. Seared both sides like a Texas-style steak by the '08 market crash the pain avoidance shift has been to the next burner to heat up. I'm not a shorter but it has its appeal regarding fixed income at present despite being dead wrong for over a year.
In a much higher interest rate environment laddering Bulletshares etfs hold vast appeal
for a buy-and-forget capital preservation minded individual with far better things to do (think beachwalk) than pay attention to financial markets having become a wall to wall mess, bumper to bumper, stem to stern, in my version because complexity favors the sinister.
Your wrote: "(it's been in a 30 year bull cycle but interest rates can't go down from here and since prices move inversely to yield . . .)
I suspect all fixed-income investments have become a risky asset.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Worried minds think alike. Adhering to the quaint old guideline of stocks/bonds mix according to age would be 40/60 but feel more comfortable with 35/65 or even 30/70.
But dislike bond exposure at this juncture point for the reasons above. A rather sticky wicket allocating a majority of assets to a credit market that offers a negative real return
on most anything that addresses the interest rate risk."
>>>>>I am confused with this; but it may be from my being short on coffee intake this morning.
All fixed income covers a lot of ground in the bond world. I have to assume you don't find any bond sectors to be without greater risk, versus 1 year ago or some other time frame. But, you also note of being more comfortable with a 30/70% equity/bond mix. Are you relating this to Gandalf's original question regarding his 26 year old nephew and his portfolio mix?
As to the "negative real return vs interest rate risk"; this may be the case going forward, when rates increase. We just don't know when that will happen, and we could also be stuck for some time in a "Japan moment", from misguided policies and/or continued delevering of the consumer which affects many other areas, too. Perhaps the beginning of this year is attempting to send a message regarding rising interest rates from the sale of bonds and whomever is currently pushing some equity markets. I suspect this is from the big money houses/traders/machines and not the individual investor and may be a short lived rally (gather 10%+ in the first month or two of 2012 and then run to other places). We have to assume at least the hedge funds are itchy to make a profit this year, after most not having much to write home about in 2011.
Take care,
Catch
Hey catch, good to hear from you. Yeah, it would have been nice if they included all Fidelity funds, but I suppose they want to have some standardization and needed to draw the line somewhere. I realize there is some redundancy (especially LC), but part of this is to see how active vs passive performs. I am also wondering about increasing the international allocation by 5% and replacing the Emerging Asia with Fidelity China Region (FHKCX) and Fidelity Latin America (FLATX) and possibly swap the bond index with Fidelity Total bond (FTBFX).
Regarding the Roth, he is able to split part of his 401K into a Roth which I had recommended to him, but not the portion where the company provides a match. He's thinking of making a 20% contribution whereby 7% would be conventional 401K and 13% Roth.
Pat, I'm not really sure how to respond to your post. Remember, I asked this question re a young investor just starting out who will be averaging into the market over many years time. That said, I suspect trying to guess/time what interest rates will do worldwide, unless you are just talking U.S. Treasuries, is certainly difficult and its unclear to me whether we will see a sharp rise in rates a la late 70s early 80s or live in a prolonged low rate environment.
As for my own port, I haven't thrown in the towel on funds like PTTRX, DODIX, VFSTX, LSBRX, although I do have holdings in floating rate, muni, high yield, emerging, RPHYX and DBLTX.
Per the original list here, per the 401k portion:
Fund Name Symbol Subclass Distribution
FID CONTRAFUND K FCNKX LARGE CAP 10
SPTN 500 INDEX INST FXSIX LARGE CAP 10
SPTN TOT MKT IDX ADV FSTVX LARGE CAP 10
FID LOW PRICED STK K FLPKX MID CAP 10
FID SM CAP DISCOVERY FSCRX SMALL CAP 10
FID EMERGING ASIA FSEAX INTL 10
SPTN INTL INDEX ADV FSIVX INTL 10
FID REAL ESTATE INC FRIFX SPEC 5
FID SEL GOLD FSAGX SPEC 5
FID INFLAT PROT BOND FINPX INCOME 5
FID NEW MARKETS INC FNMIX INCOME 5
FID STRATEGIC INCOME FSICX INCOME 5
SPTN US BOND IDX IS FXSTX INCOME 5
100
>>>>>Assuming his Roth portion will allow his monies to go where he chooses; and especially looking down the road with this account having the brokerage feature, which with Fidelity opens up all avenues.
Thinking outloud here: I would attempt to make the Roth the more aggressive of the two holdings. At least current taxation would favor this.......but who knows in 40 years, eh? This does not mean to reduce the equity holding in the 401 and is only looking forward many years.
---The 401 could have the FSAGX removed; and FFGCX would take its place in the Roth portion. Or if FFGCX is available in the 401, a swap. This would free up 5% in the 401 for another area. FFGCX is about 1/3 each in metals, energy and agri, and mostly large cap companies.
---The 3 LC's are head scratchers.........they track one another fairly close. Although this is getting a bit picky, I would be inclined to reduce each of the LC's by 3% and move the combined 9% to the Low Price Stock fund, which travels mostly in the large, mid and small cap areas with some exposure to mega and micro holdings. The one possible benefit with the LC's is the ability of some to maintain global strength in a sideways/low growth global economy...in my opinion.
---FHKCX vs FSEAX The China fund is focused on China, HongKong and Taiwan. FSEAX also holds these areas but in smaller %'s; but also includes many asia region countries. My own acct would choose FSEAX, although we currently do not hold either.
---FLATX wasn't on the list, but I assume is a choice, too. 60% Brazil with Mexico and Chile making the majority of the remainder. This makes sense as to where the action is for Latin America. One will presume sustained growth going forward with a "fairly young" demographic. Some of the growth in some sectors will rely upon global growth and demand for natural resources from this area.
---Bond index vs FTBFX....FTBFX was not on the list, but is available ??? These two funds are not far apart going back to 5 years, but one would gain +.3%/year based upon the E.R. The index performed better in the market melt.
---FSICX we hold; but has some limits set in the prospectus as to flex. But, performs decently for this type of bond fund. It is on our list of possible sells for a bond mix elsewhere. But, this would not apply to your nephew's holdings thinking.
---FINPX will be slightly duplicated in other bond funds, but is a possible inflation hedge too; as well as a go to area in times of monetary distress. FRIFX is a nice, conservative bond/equity real estate mix with a decent yield.
---Also of interest, at least at this house; are the new FEDDX (sm/mid cap global) and FTEMX (60% eq/40% bond).
*****This link for Fidelity funds is only daily pricing, but the list is easy to review.
http://fundresearch.fidelity.com/mutual-funds/fidelity-funds-daily-pricing-yields?refpr=MFRes_016
I'm out of time for today; and not much noted about the Roth. The nice part of this for your nephew is getting started with a "dollar cost averaged" investment(s); so that possible market swings in the next few years are not going to burn down his investment house. The exception being for the Roth and whether he does a lump sum for a calendar year; or just plunkes some money in every now and then for a calendar year.
Okay, gotta run. Throw thoughts back against this.......we'll all be here. I likely missed something or a thought.
Take care,
Catch
This is a good list of funds. Gives a pretty good sets of equity and bond funds.
For a 26 year old consider:
FSTVX 15%
FCNKX 15%
FLPKX 15%
FSIVX 15%
FSEAX 10%
FRIFX 5%
FXSTX 10%
FSICX 10%
FNMIX 5%
Guys, I really appreciate your advice, it was very good:
Based on that, I have tweaked a little more:
FSTVX 12%
FCNKX 12%
FLPKX 15%
FSCRX 5%
FSIVX 15%
FSEAX 7%
FLATX 5%
FFGCX 5%
FRIFX 5%
FXSTX 7%
FSICX 7%
FNMIX 5%
Other than some uncertainty about using FSTVX or switching to FXSIX, I think this is a pretty reasonable allocation for a new investor.
Looks like a good starting point portfolio.
I forgot to place and mention this most useful link. It is internal to Fidelity, but you do not need to sign in or have an account. You will find the first ticker box set to FTBFX, but you may overwrite this with any other ticker; not just Fidelity tickers. You may fill all five ticker symbol boxes and get a quick and dirty side by side for some basic data as you scroll down the page. ALSO, after placing a ticker symbol, click the "GO" icon to load the fund name for display, and you will now find the name of the fund just above the ticker. You may then click upon the fund name to be taken into another data base area where you may explore more detail about that particular fund. One page in this area will also allow you to compare another fund to the current fund in graph form....to the right page side.
NOTE: you do not need to fill all 5 ticker boxes to use this function. You may want to use the fund currently set to find what you are able to do with this section of Fidelity.
It is a nice area to give one some fast and basic data about funds you may have an interest.
http://fundresearch.fidelity.com/mutual-funds/compare-funds/FTBFX
Take care,
Catch
Catch,
Thanks, thats a useful tool. Now if they only had one of those x-ray tools for seeing what your portfolio composition looks like vs having to input into morningstar:)
Fidelity has tools for acct holders to use for some measurements similar to M*.
Based upon your statement, you have a subscription with M* to use the tools. If not, this link is for free use of full M* tools at TR Price. Set a username and password and you may then use the M* tools in the list. TRP has never bothered me with requests or otherwise.
http://individual.troweprice.com/public/Retail/Planning-&-Research/Tools-&-Resources/Investment-Planning
Regards,
Catch
No premium M* membership here, although I do have access to that tool through my TRP 401K site. Thanks again, you've been extremely helpful.