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I invested a bunch of money around March (~9 months ago) in a Roth IRA. I am getting ready to rebalance, and put more money in this January.

I was very attracted to Fidelity's ZERO funds, and put some money into the Zero International (FZILX) and Total Market (FZROX) funds. I also put some money into their value discovery fund (FVDFX), and a bunch into their freedom 2065 retirement fund (FFSFX).
These 4 I invested in yielded an average of about 6% compared to SPY's 15% for that same time period (leaving out the exact details/amounts as they are not particularly relevant). Only Fidelity's total market fund was anywhere close to SPY's gains (at 16% for me).


Am I doing bad by picking these funds? I thought it would be good to diversify with a couple of funds. Or, as my title suggests is Fidelity just bad at investing and getting crushed by the SPY? Because it seems that all their funds which they created did bad except for the total market fund, which really just tracks the market. Any advice is appreciated.

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    Hindsight is a wonderful thing. You’ve diversified your investments, without knowing the future of the markets. That’s good. You’re comparing that, looking backwards, with what actually happened. No one can predict which fund will do best over a given time period. You’re generally better off with a diversified portfolio.
    – Peter K.
    Dec 23, 2021 at 8:49
  • @PeterK. Thanks for the response, I hear what you are saying. I am mostly a passive investor, but every year or so I will have more money to put in the Roth IRA and I start to think about where to put it. So perhaps I will just diversify further this time by picking up some SPY (which I have very little of).
    – AfronPie
    Dec 23, 2021 at 12:46

4 Answers 4

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I thought it would be good to diversify with a couple of funds.

By diversifying you made it so that on average you will under-perform the best of the options you picked, it also made it so you would over-perform the worst of the options you picked.

That is by design. You achieved your goal.

If one of the sector has a very bad year the others might not. If one sector has a great year, you didn't completely miss it.

I was very attracted to Fidelity's ZERO funds, and put some money into the Zero International (FZILX) and Total Market (FZROX) funds. I also put some money into their value discovery fund (FVDFX), and a bunch into their freedom 2065 retirement fund (FFSFX).

You put your money into an international fund; a total market fund; a capital appreciation fund; and a fund that's goal is geared to somebody who is about 20 years old. I don't know if that is a good mix for you or not. It depends on your risk tolerance, goals, and timeline.

Or, as my title suggests is Fidelity just bad at investing and getting crushed by the SPY? Because it seems that all their funds which they created did bad except for the total market fund, which really just tracks the market. Any advice is appreciated.

I don't see this as just an active vs passive issue. You will have to determine by comparing each of the funds to their associated index to see if they performed better or worse than that index.

The index for international funds is different than the SPY. You have to determine if the FZILX did better or worse then the industry standard international index. You have to do this for each investment your are evaluating.

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  • Thanks for the answer. I am gonna look into other international, value, and retirement funds later today. Another thing that caught my eye which I seemed to forget to add to the post is that the Zero funds have zero dividends, while the SPY has a 1.22% dividend yield. Just something that bothered me further.
    – AfronPie
    Dec 23, 2021 at 12:42
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    @AfronPie But dividends are not income. They are just a way to get some cash out of the investment without selling. The value of a fund goes down by the amount of its dividend when its paid, so if your goal is long-term growth then don't worry about dividends.
    – D Stanley
    Dec 23, 2021 at 15:15
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You're looking at the wrong numbers.

To judge whether an asset manager is good at managing money or assets, you need to compare the funds' returns to their specific benchmarks.

For example, FZILX's benchmark is The Fidelity Global ex U.S. Index

The Fidelity Global ex U.S. Index is a float-adjusted market capitalization-weighted index designed to reflect the performance of non-U.S. large- and mid-cap stocks.

So you're judging Fidelity's ability of managing a non-US fund by comparing its performance against S&P500 which is the US large cap market, i.e apple to orange. What really happened here is just US stock market this year beating the rest of the world.

As far as I can see from Fidelity's website, in the last three years, FZILX lags its benchmark by between 20-40 bps (you can see from the Fund Fact sheets), which isn't terrible for an international equity fund, though it's worth exploring more.

The real question you need to ask yourself is - Do I want the non-US exposure in my portfolio? And how much? From there you compare funds like FZILX and other ones, before you commit to investing in one or multiple.

Edit: Based on your comments it seems you might not have a good grasp of what you are investing in. E.g. you mentioned you don't have a lot of S&P 500 exposure, but you do. FZROX tracks the US total stock market, of which at least 80% is S&P500. This is why "only Fidelity's total market fund was anywhere close to SPY's gains"

I recommend you do a bit more homework on the topic of asset allocation - large cap vs. small cap, US stock vs. non-US, stock vs. bonds and other asset classes.

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Every manager of an actively-managed mutual fund is "bad" at managing money in the sense that no one has beaten the appropriate index fund consistently over a very large number of years. It is true that in the relatively short term, fund managers do beat index funds, sometimes spectacularly and sometimes even for several years in a row (Fidelity Magellan and Legg Mason Value Trust are examples from the past) but not consistently over a long period of time (e.g. two or three decades). Thus, even if comparisons are made to the correct index (instead of a Total Stock Market fund being compared to a S&P 500 index fund), fund managers have a hard time "beating the average".

One point with regard to Total Stock Market funds, these are hardly ever invested in all the companies in the stock market, let alone in the right proportions. Total Stock Market funds invest in a subset of all the companies available, with these (and the amounts invested) being chosen by the fund manager as being most likely to duplicate the movement of the Total Stock Market. If the fund manager's estimates are correct, shareholders in the mutual fund stay invested in the mutual fund and are happy with the returns. If performance does not keep up, mutual fund shareholders would leave in droves. So, the fund manager does have incentives to produce good results whereas the manager of a S&P 500 index fund can be more relaxed (and charge a lower expense ratio as the management fee).

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This is a classic "active vs passive" issue. Given a long enough time frame, almost all active funds will underperform their benchmark index due to cost, bad tax management and simply following fads.

See
Why do people claim that it's hard to outperform the S&P 500? It has only increased in value by ~1.5x in the past 5 years

Is there any benefit to investing in an index fund?

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  • The four funds I mentioned have holdings turnover of 8%, 1.10%, 36%, 18% (with 1.10% being the total market fund which is clearly not actively managed). So you are saying, stay passive and hold S&P 500/other indexes?
    – AfronPie
    Dec 23, 2021 at 13:24
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    The difference here is not active vs passive - the active funds are invested in completely different markets/segments, so the S&P 500 is not a benchmark for them.
    – D Stanley
    Dec 23, 2021 at 15:13

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