Fidelity wants to hold your hand
As investors reel, the fund giant and others step up their advice-giving
By Robert Weisman, Globe Staff | March 11, 2009
- It’s not easy peddling financial advice when people are queasy about opening their quarterly retirement account statements.
But Fidelity Investments, seizing on what it views as an opportunity in uncertain times, will introduce a three-pronged financial guidance program in an effort to reassure wary investors buffeted by the turbulent economy, the company said yesterday.
Fidelity will host more than 500 free seminars for customers and noncustomers this month at its investment centers across the country, including more than 50 at New England branches. The sessions will cover more than a dozen topics, from market intelligence to retirement road maps, promising “actionable financial strategies” for investors at different stages of their lives. Fidelity said it may extend the seminars beyond March if there’s demand.
- It also is rolling out free online calculators and other Web-based tools to help investors evaluate their portfolios. And it is launching an advertising campaign promoting its program, called Guide to Personal Savings, or GPS, a play on the acronym for the navigational system that guides drivers.
The mutual funds giant, based in Boston, declined to say how much money it will spend on the program.
“Many individuals are looking at their portfolios with a fresh set of eyes,” Kathleen A. Murphy, the president for personal investing at Fidelity, said in a conference call with reporters yesterday. Fidelity’s goal is “to make this process easier” for those people, she said.
Murphy cited research showing 83 percent of Americans have not sought financial help in the past year because they feared it would be too costly or was designed solely for the affluent.
The campaign is designed to educate ordinary investors so they can “get back on track with their finances,” in Murphy’s words, not explicitly to sell stock-based mutual funds.
- Fidelity unveiled its program on a day the Dow Jones industrial average jumped 379.44 points, or 5.8 percent, to 6,926.49 in a bounce-back rally. It was the biggest point gain for the Dow since Nov. 24.
Famously bearish investor Jeremy Grantham, chairman of the Boston investment firm Grantham, Mayo, Van Otterloo and Co., meanwhile, posted a commentary on his firm’s website yesterday, urging investors to start moving money from cash to stocks and suggesting stocks may now be undervalued by 30 percent.
The broad market retreat has hurt mutual fund firms particularly. More money has flowed out of stock mutual funds than into the funds in five of the seven months ended Jan. 31, the most recent period for which data are available, according to the Lipper unit of the Thomson Reuters research firm. That lowers the amount of assets fund firms manage, which in turn reduces the fees they collect. The lower revenue means fund companies don’t have as much money to reach out and give new customers financial help.
“The assets in the fund industry, like every other industry, are down, especially equity fund assets,” said Greg Ahern, spokesman for the Investment Company Institute, a mutual funds industry group in Washington. “You’re seeing the demand for professional advice increase exponentially at a time like this, not only for advice about retail funds but about 401(k)s and other retirement funds.”
- Analysts said mutual fund companies and other financial firms have stepped up their hand-holding in recent months as the market has tumbled and the financial crisis has deepened, sending out investment newsletters, sponsoring Internet seminars called “Webinars,” and having more frequent phone conversations with rattled customers.
Other firms, such as Vanguard Group and T. Rowe Price, also host free seminars, though they are usually restricted to customers, and offer their own online planning tools. “We are continually coming up with new analyses helping people prepare for retirement and manage through this environment,” said Brian Lewbart, a spokesman for T. Rowe Price, a mutual funds firm based in Baltimore.
Fidelity’s program may be unique, analysts said, not only because it is backed by advertising but because it is tailored to investors – including noncustomers – spooked by the recession. The campaign, reaching out to individual investors and employees who are investing retirement funds through managed workplace accounts, is following the playbook of businesses that seek to capitalize on bad conditions to boost their market share in downturns, they said.
- “A lot of fund firms are ramping up communications,” said Dan Sondhelm, partner at SunStar Strategies, an Arlington, Va., marketing consulting firm for the financial industry. “They’re getting more phone calls and Web hits than ever because investors are scared. But not a lot of firms can afford to invest in advertising right now when their revenue is down 50 or 60 percent” because of the stock market slump.
Fidelity said details of its program, including its interactive online calculators and the times and locations of its educational seminars, will be posted on its website, www.fidelity.com.
Robert Weisman can be reached at weisman@globe.com.
March 09, 2009
Index Funds Win Again
Here’s yet another piece that touts the advantages of index funds — this time from the NY Times. The conclusion:
There’s yet more evidence that it makes sense to invest in simple, plain-vanilla index funds, whose low fees often lead to better net returns than hedge funds and actively managed mutual funds with more impressive performance numbers.
Basic stock market index funds generally aspire to nothing more than matching the returns of a market benchmark. So in a miserable year for stocks, index funds may not look very appealing. But it turns out that, after fees and taxes, it is the extremely rare actively managed fund or hedge fund that does better than a simple index fund.
The piece goes on to detail the work and findings of Mark Kritzman, president and chief executive of Windham Capital Management of Boston and professor of financial engineering at M.I.T.’s Sloan School of Management, where he compared index funds to actively managed funds and hedge funds. The simplified summary: actively managed funds perform better before expenses are subtracted. But once expenses are deducted, index funds are the better choice. Their words:
Expenses were the culprit. For both the actively managed fund and the hedge fund, those expenses more than ate up the large amounts — 3.5 and 9 percentage points a year, respectively — by which they beat the index fund before expenses.
If such outperformance isn’t enough to overcome the drag of expenses, what would do the trick? Mr. Kritzman calculates that just to break even with the index fund, net of all expenses, the actively managed fund would have to outperform it by an average of 4.3 percentage points a year on a pre-expense basis. For the hedge fund, that margin would have to be 10 points a year.
As I’ve said before (probably a hundred times now on this site), costs matter BIG TIME when it comes to investment returns (that’s why I’ve taken extra steps to get my investing costs as low as possible.) And that’s one reason I like index funds — they keep investment costs to a minimum and thus keep total returns as high as possible.
For more thoughts on index funds, see these posts:
