Should I move out of my actively managed IRA at Fidelity and put it all in index funds?

Question

I have an IRA at Fidelity. It is where I have rolled old 401(k) plans into. Currently, I am paying Fidelity to actively manage the account. It is currently invested in many mutual funds, bonds, and some index funds. In addition to the cost ratio I am paying on the various mutual funds, I am also paying a quarterly fee to Fidelity that is based on the average balance of the account (something like .25% but it is tiered).

I am I starting to think that I am probably paying way too much in fees and should probably self manage the fund. Furthermore, I should probably just put everything into an index fund. I have recently read how index funds routinely out perform mutual funds and that costs are very low since they are pretty much on auto pilot with no manager. Is this a wise move?

I am 20 years (at least) from retirement and my risk tolerance is high.

EDIT: I recently compared the performance of my IRA compared to the market of the last 5 years and the market has out performed my fund - by a few percentage points. But it has been a bull market. Risk is being managed by diversification but with a 20 year horizon I wonder if risk management is worth the cost (I think I am starting to answer my own question).

Answer 1

In a word, yes. You can buy very low cost index ETFs, like VTI, VEA, BND, FBND and rebalance in proportion to your age and risk tolerance. Minimal management and low cost.

Answer 2

Unfortunately, that's a call only you can make and whichever route you choose comes with advantages and disadvantages. If you manage your money directly, you may significantly reduce costs (assuming that you don't frequently trade index funds or you use a brokerage like RobinHood) and take advantage of market returns if the indexes perform well. On the other hand, if the market experiences some bad years, a professional might (and this is a huge might) have more self-discipline and prevent a panic sell, or know how to allocate accordingly both before and after a rise or fall (keep in mind, investors often get too greedy for their own good, like they tend to panic at the wrong time). As an example of why this might is important: one family member of mine trusted a professional to do this and they failed; they bought in a rising market and sold in a falling market.

To avoid the above example, if you do go with the professional service, the best course of action is to look at their track record; if they're new, you might be better on your own. Since I assume this one or more professionals at the company, testing to see what they've recommended over the years might help you evaluate if they're offering you a good choice.

Finally, depending on how much money you have, you could always do what Scott Adams did: he took a portion of his own money and managed it himself and tested how well he did vs. how well his professional team did (if I recall, I believe he came out ahead of his professional team). With two decades left, that may help guide you the rest of the way, even through retirement.