Need Help Choosing Fidelity Funds


B

Brian Jorgenson

I have a 403B plan at work. I am going to be investing with Fidelity
and possibly Valic. I want to choose 5 funds from Fidelity with one of
them being a bond fund. I am 26 and at this point will be investing at
a high-risk option. Out of all Fidelity funds available, which top 5
should I be investing in for the long haul? Preferably large cap funds
and any growth funds.

Thanks,
Brian
 
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J

jt

them being a bond fund. I am 26 and at this point will be investing at
a high-risk option. Out of all Fidelity funds available, which top 5
should I be investing in for the long haul? Preferably large cap funds
and any growth funds.
I think their aggressive large cap growth funds have not looked so
exciting over last year or two. Their mid cap and high yield bonds
have sparkled more recently, and they have dropped their mgt fees
to unbelievable levels on standard index funds.

One approach would be to start with a big lump in ffnox, a four
in one index fund. This gives 55% sp500, 15% intnl, 15% bond
and 15% small/mid cap. Then refine allocs with a smaller lump
in an area or two you want to supplement, such as...

firex is a very interesting foreign reit fund that is certainly on fire
now and may have less interest rate cycle risk than domestic reits.

fnmix is a foreign emerging bond fund with incredible long term
record; I get confused which fid domestic high yields are similar.

flvcx would really juice up the midcap; I'm not aware of expecially
good smallcap fund of theirs, although that is an attractive area.

femkx is a passable agressive intnl stock fund, but may do better
rigging your own with their latin am and even nordic fund pieces.

ffrhx floating rate short term bond would be a great anchor of
stability with low interest rate risk yet good returns. Or finpx for
inflation protected rates...
 
M

Mark Freeland

jt said:
I think their aggressive large cap growth funds have not looked so
exciting over last year or two.
That is because this has been the weakest category in Morningstar's
nine-category style universe. It's the only one with an average loss over
the past three years, not to mention the smallest gain over the past year
(7%, while every other category, save small cap growth at 9%, is in double
digits). This all suggests that large cap growth is a good place to be.
http://news.morningstar.com/fundReturns/CategoryReturns.html

I like Contrafund, which while listed as a large cap blend fund, leans
heavily towards growth, and has had the same manager since 1990. It was in
top 5% in 2002 and 2004 YTD, and in the top 3/8 in 2003. Fidelity Cap App
is another fine large cap growth fund - this one is even listed as a growth
fund, though it can go anywhere. Its manager has been there since 1996. It
has been in the top quintile for 2001-2004.

These are relatively "small cap" large cap funds (with healthy doses of
midcaps). You might want a "giant cap" fund to complement them. The S&P
index would do fine, as would Dividend Growth (2/3 in "giant cap"
companies).
Their mid cap and high yield bonds
have sparkled more recently,
Fidelity midcaps have had mixed recent performances, relative to their
peers. Fidelity draws in so much money that it is difficult for them to
maintain mid or small cap funds that can maneuver well. One exception is
Low Priced, but that fund has been completely closed to new accounts - even
if your 403B plan offers the fund, they will not allow any new accounts to
be opened.

The non-sector Fidelity funds currently invested in midcaps that have done
better than their average peers in the past one and three years (aside from
Low Priced) are:

Leveraged Company Stock - great record, still small ($1.5B), extremely
aggressive

Structured Mid Cap Growth - 40-50th percentile - just changed manager (even
though fund is only 3 years old), designed to follow the Russell MidCap
Growth index (expensive closet index at 0.99%)

Structured Mid Cap Value - second quintile - just changed manager (even
though fund is only 3 years old), designed to follow the Russell MidCap
Value index

Value - top quarter - long time manager, erratic but appears solid.

I'd be inclined to take an index fund over the "structured" funds - much
cheaper, and the funds are not outperforming their benchmark indexes.

Fidelity funds that are invested in midcaps and have been abysmal of late
include Aggressive Growth, Mid Cap, Value Strategies. The remaining couple
have been lackluster or inconsistent over the past couple of years: Focused
(2004: 6th percentile, 2003: 80th); New Milenium (2004: 94th; 2003: 39th,
not exactly shining).

Of these funds, given your age and interests, and their performance,
Leveraged Company might be reasonable for a small percentage.

For international large cap growth, you might look at Diversified
International. It has closed, but is available to new accounts in
retirement plans (unlike Low Priced). It also has 10% in emerging markets,
so you are getting some exposure there as well with the fund.
and they have dropped their mgt fees
to unbelievable levels on standard index funds.
What does "standard" mean? Fidelity dropped fees only on its Spartan index
funds. For example, their large cap growth index fund (aka NASDAQ
composite) still has an expense ratio of 0.45%.
One approach would be to start with a big lump in ffnox, a four
in one index fund. This gives 55% sp500, 15% intnl, 15% bond
and 15% small/mid cap.
I don't think that someone age 26 should be in bonds at all, possibly
excepting bonds purchased for capital appreciation (as Vinik did with
Magellan).

If you do want these index funds, why not just invest in them directly, and
save nearly half the expenses (there's a second layer of fees that comes
with the 4-in-1 fund)? Not to mention gaining more control over the mix of
your investments.

A mix of giant cap (Dividend Growth), large cap growth (Contra and/or Cap
Ap), mid cap (Leveraged, in smaller doses), and foreign large cap growth
(Diversified Int'l) may give you the type of portolio you are looking for.
 
F

FranksPlace2

I have both Valic and Fidelity funds.

I would stay away from Valic because their fees are higher; their
daily prices are not available for downloading; they don't post
dividends and some are their funds are other funds with their fees on
top.

If I was 26 again, I would not invest in a bond fund, especially with
today's interest rates.. Manage this money for the long term.

The discussion by others on what fund is better makes that point that
"It depends." Over time the answer changes. I have subscribed to a
Fidelity newsletter for about 10 years which has three agressive
portfolios: growth, select and unique opportunities. If you want to
actively manage your portfolio, I recommend a newsletter. Plan to
change your investments as conditions change.

Or invest in index funds.

Frank
 
P

Paul Michael Brown

I don't think that someone age 26 should be in bonds at all, possibly
excepting bonds purchased for capital appreciation (as Vinik did with
Magellan).
I respectfully disagree. In a world where the return on equities is
uncertain, the yield on fixed income investments (even in today's low rate
environment) can be an invaluable part of even everybody's portfolio --
regardless of how young they are.

Even a 26-year-old investor can benefit from a small position in bonds
because it will reduce the volatility in his portfolio by a significant
amount while only reducing the return (vice a portfolio that's 100 percent
equities) by a small amount. For the time being I would recommend an
allocation of about 20 percent in an index fund that tracks the total bond
market -- such as Vanguard's Total Bond Market Index Fund (VBMFX). As I
write, the 10-year yield on this fund is 7.48 percent. Even if we assume
the great bull market in bonds is over and the yield will be cut in half
that's still 3.74 percent going forward. This is a nice way to diversify
with minimum fees. Once he gets to be age 35 or so, I'd recommend
increasing this position to about 35-40 percent.
 
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F

FranksPlace2

Two valid reasons for reducing volatility are a short term need for
the money (say less than 5 years) or investor risk aversion. I don't
think either of those apply to a 26 year old investor who "will be
investing at a high-risk option". I think Brian has a great
opportunity to learn to deal with the equities market with a 100%
stock portfolio.

Are there other reasons for reduced volatility?

Frank
 
E

Elizabeth Richardson

Are there other reasons for reduced volatility?
Sometimes people react emotionally to volatility, especially inexperienced
investors. Reducing volatility helps them to stay the course.

Elizabeth Richardson
 
T

Tad Borek

FranksPlace2 said:
Two valid reasons for reducing volatility are a short term need for
the money (say less than 5 years) or investor risk aversion. I don't
think either of those apply to a 26 year old investor who "will be
investing at a high-risk option". I think Brian has a great
opportunity to learn to deal with the equities market with a 100%
stock portfolio.

Are there other reasons for reduced volatility?
This isn't really the same thing, but I find that a lot of people pick
funds based on the fund names, as if that means anything. And
unfortunately this can lead to choices that are very volatile, but not
likely to perform all that well. The financespeak term for this is
"unrewarded risk" and it's a case where reducing volatility should
actually result in better returns.

As an example...I would put in that category most funds labeled, say,
"XXX Aggressive Growth Fund" - a lot of 401ks have them and a lot of
people focus on them. I see portfolios where people pick a few of these,
and that's all they've got. I'm aggressive, I want my money to grow,
that's the kind of thing to get right?

But many of these funds are in the category "small cap growth" or "mid
cap growth" and when you run the numbers these are the ones with the
most "unrewarded risk." Very volatile, but not necessarily better. As an
extreme example think of an all-dot-com stock fund. Very volatile, very
risky, but basically throwing your money at garbage.

So that's one reason lower volatility can be better...because some of
the highly-volatile stuff just hasn't performed well.

Also to a certain extent you can get better returns from the
less-volatile mixes - a benefit of diversification. Like, given the
choice between an even split among S&P500 + small cap value + REITs +
bonds, or being "100% US growth stocks", the first mix should be less
volatile, and have higher returns. If you look at historical returns
that mix has been about half as volatile, but with nearly 3% per year
additional returns.

So I guess I'd say that volatility is good unless you aren't going to
get anything out of it.

-Tad
 
F

FranksPlace2

Tad,

You are right. It is easy to increase volatility by choosing risky
stocks or mutual funds. It is harder to get an increased return for
that increased risk. I rely on newsletters to help me.
 
B

Brian Jorgenson

The Fidelity funds I like best:

Stock:
Value
Low Priced Stock (Closed to new investors)
Spartan Total Market Index (0.1% expense ratio)
Capital Appreciation

Bond:
Strategic Income
Inflation Protected Bond

International:
Diversified International
Spartan International Index

Dave


I have read all your posts and found them very educating to a somewhat
uneducated investor. I have picked the following funds and %'s and
would like an opinion. These of course will change as the market
changes.

Strategic Income 10%
Capital Appreciation 25%
Structures Midcap Value 17%
Internactional Small Cap 22%
and 2 selet funds Health Care and Natural resources both being 13%

I also have a Fidelity Roth IRA in EPGBX Equity Growth B class which
does fairly well.


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding.
 
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P

Paul Michael Brown

Two valid reasons for reducing volatility are a short term need for
the money (say less than 5 years) or investor risk aversion. I don't
think either of those apply to a 26 year old investor who "will be
investing at a high-risk option".
First, I think we can assume that anybody who seeks mutal fund
recommendations from a Usenet newsgroup is not a sophisticated investor.
So when the original poster claims he's interested in "a high-risk option"
I take that with a *huge* grain of salt. As other contributors to this
thread have noted, what people SAY about their risk tolerance often
conflicts with how they really feel when they start watching their
principal shrink. I agree with Ms. Richardson, who explained that a
diversified portfolio that reduces volatility will help many investors
stay the course and contribute new money on a regular basis.

Second, I think that an 80/20 mix of stocks and bonds *is* a "high-risk
option." Granted, it's not as high risk as a portfolio that 100 percent
equities. But it's still going feature a healthy about of beta.
I think Brian has a great opportunity to learn to deal with the equities
market with a 100% stock portfolio.
Not sure what that means. Is the idea that a novice investor learns
something by suffering wild swings in the value of a poorly diversified
portfolio? I should think this would discourage future investing. Far
better, it seems to me, would be to start with a simple diversified
portfolio as a young person so as to learn that different asset classes
perform differently. That way, the novice would learn from the start that
it's smart to construct an appropriate portfolio of different assets
rather than making a huge bet on a single type of investment. As the
investor ages and learns more, he can add more asset classes to his
portfolio.
 
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D

dave_and_darla

Brian said:
I have read all your posts and found them very educating to a somewhat
uneducated investor.
Thank you. I remember how it felt when I started investing, about 25
years ago. I'm glad that I'm able to help a little bit.
I have picked the following funds and %'s and
would like an opinion. These of course will change as the market
changes.

Strategic Income 10%
Capital Appreciation 25%
Structured Midcap Value 17%
International Small Cap 22%
and 2 selet funds Health Care and Natural resources both being 13%

I also have a Fidelity Roth IRA in EPGBX Equity Growth B class which
does fairly well.
I don't remember if you have said how old you are or what your
financial goal is. Your portfolio is about 68% domestic equities, 22%
foreign equities, and 10% bonds. It sounds fine for someone who is
relatively young and has a long-term goal. I would gradually increase
the bonds, starting at age 50 or so. I'm 62 and have about 56% in
domestic equitits, 19% in foreign equities, and 25% in bonds. I plan to
keep my portfolio allocation about the same throughout my retirement.
Dave
 

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