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Why Active Management Spells Disaster For Retirees: Financial Advisors’ Daily Digest

Fidelity Contrafund (MUTF: FCNTX ), despite its generally positive reputation, represents a risk that retirees cannot afford to take in the opinion of Seeking Alpha contributor Eric Nelson, an advisor with Servo Wealth Management. The essential problem is that retirees have just one chance to get it right, and can’t afford the risks of style drift or underperformance that any active manager presents. Better to arm yourself with small- and value-tilted index funds, and critically, an advisor who will prevent client drift at just the wrong time, Nelson argues. We’d love to hear your thoughts on all this, in the comments section below. Note to readers: Financial Advisors’ Daily Digest will not be published on Thursday. But we’ve got a few extra links of advisor-related stories to hold you till Friday:

Stocks Aren’t Bad, They’re Just Not Good

When we’re doing our due diligence on an Alternative Investment, one of the first questions we ask managers is what are the market environments in which the program struggles to find returns. And once we get into when they’re likely to do poorly, we then analyze just what that poor performance looks like. In essence – how bad is it when it’s bad? Does everyone/anyone who tracks the stock market with low cost index tracking ETFs do the same? With stocks all but flat since mid-way through 2014, some investors are starting to question where the returns are, rightly so. But the stock indices aren’t human. We can’t tell them to try a little harder. Or go for a moonshot. Or shake off the rust and get back into the game. No, the stock indices are a rule-based investment model. So while pundits and economists are grasping at straws to identify the problem, we’re more apt to ask the manager of the investment model “Why is the current market making it difficult for your trading model to find returns?” We’ve said this before, but it bears repeating, stock indices like the S&P 500 are a trading system; or if you prefer a set of investment rules or stock picking model. Look no further than Winton Capital’s CEO on the matter. We really couldn’t have said it better. Harding: “The S&P 500 is a trading system. The S&P 500 is a set of rules for buying and selling stocks. And by the way… not a very good one! Think about this for a second. If you took the S&P 500’s monthly returns and put them under some sophisticated sounding hedge fund name, everyone would tell you the drawdowns are too large and last too long, while the annualized volatility is too high for the performance it generates. There would be a Bloomberg article demonizing the system for large drawdowns and for tricking investors. And what’s worse, this model is a one trick pony. It’s solely focused on one asset class, and only makes money when that asset class goes up. Of course, it does have the Fed doing everything in its power to avoid a 20% drawdown in the markets at the cost of creating a future bubble. Not to mention buybacks are preventing real growth while 3 companies make up 10% of the market’s capitalization . Put that all together and the S&P 500 is nothing more than an investment model that is high reward-high risk. We dare say, it’s a very basic equity focused hedge fund, choosing which stocks to “own” and which to avoid. To paraphrase Captain Barbossa, “You better start believing in hedge funds Ms. Turner – you’re in one !” There’re bouts of volatility, drawdowns, and low risk-adjusted returns. But that doesn’t make the most beloved system in the world a bad investment. By all means, take a look at it. There’s a lot to like. Chief among them is probably choosing to align yourself with the majority of investors out there; the government and a huge industry hell-bent on seeing it go up year after year. The S&P 500 isn’t a bad investment, it’s just not a good one. It will test your nerve, and then test it some more. As a recent post by Reformed Broker noted: Just because it’s cheap and easy to get exposure to stocks these days, that doesn’t mean it’ll be mentally cheap and easy to stick with them.

4 Best-Rated Fidelity Mutual Funds To Invest In

Fidelity Investments is one of the largest and oldest mutual fund companies in the world. The company serves nearly 25 million individual customers. As of December 31, 2015, it had total assets of $5.15 trillion, with $2.04 trillion under management. Fidelity Investments carries out operations in the U.S. through 10 regional offices and over 180 Investor Centers. It also has its presence in eight other countries of North America, Europe, Asia and Australia. The company provides investment advice, discount brokerage services, retirement services, wealth management services, securities execution and clearance and life insurance products to its clients. At Fidelity, a large group of investment professionals carry out extensive and in-depth research on potential investment avenues worldwide. Below, we share with you four top-ranked Fidelity mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. To view the Zacks Rank and past performance of all Fidelity mutual funds, investors can click here . Fidelity Select Telecommunications Portfolio No Load (MUTF: FSTCX ) invests the majority of its assets in securities of companies primarily involved in the manufacture and sale of communications services or communications equipment. It invests in both domestic and foreign issuers. Factors including financial condition and industry position, as well as market and economic conditions are considered before investing in a company. The fund is non-diversified and has a three-year annualized return of 7.5%. As of March 2016, FSTCX held 51 issues, with 22.18% of its assets invested in AT&T Inc. (NYSE: T ). Fidelity Select Retailing Portfolio No Load (MUTF: FSRPX ) seeks growth of capital. It invests a large chunk of its assets in securities of firms involved in merchandising finished goods and services to consumers. FSRPX focuses on acquiring common stocks of companies throughout the globe. Factors including financial strength and economic condition are considered before investing in a company. The fund has a three-year annualized return of 18.3%. Deena Friedman has been the fund manager of FSRPX since 2014. Fidelity Select Software & IT Services Portfolio No Load (MUTF: FSCSX ) invests a major portion of its assets in companies whose primary operations are related to software or information-based services. It primarily focuses on acquiring common stocks of both domestic and foreign companies. FSCSX uses fundamental analysis to select companies for investment purposes. It has a three-year annualized return of 15.9%. FSCSX has an expense ratio of 0.76%, as compared to a category average of 1.45%. Fidelity International Small Cap Opportunities Fund No Load (MUTF: FSCOX ) seeks capital appreciation. It invests the majority of its assets in small-cap companies located outside the U.S., including those from emerging countries. FSCOX emphasizes investing in common stocks of companies with market capitalization below $5 billion. The fund invests in securities issued in different countries. It has a three-year annualized return of 6.2%. Jed Weiss has been the fund manager of FSCOX since 2008. Original Post