Q. My wife and I have all our investments with a major brokerage firm and we are not pleased with the return we’ve been getting lately. I have been thinking about putting some of our funds with firms like Fidelity or Vanguard. However, they have so many options that I can’t tell which would be most to our benefit.
What would you recommend for a no-load-type fund with moderate risk? —J.S., Dallas, Texas
A. You should give your broker a fair trial before you hang him. What do I mean by that? Simply this: you need to find a way to compare the return you’ve had on your current brokerage account with mutual funds that have been invested in a similar way. It isn’t reasonable, for instance, to expect your broker to produce an annual return equal to, or better than, the Standard and Poor’s 500 Index if half of your account is invested in bonds.
Here’s why. In 2014 the S&P 500 Index, which many people use as a measuring stick even when there is no reason to do so, provided a return of 13.69 percent. That return, according to Morningstar, was better than a whopping 80 percent of all the managed mutual funds that invest similarly but try to provide a better return. The average return of managed funds in the same category was only 10.96 percent.
The comparison gets worse if some of your money was invested in fixed-income securities. In 2014, the average managed balanced fund, which is typically 60 percent stocks and 40 percent bonds, returned only 6.21 percent. That’s less than half the return of the S&P 500. But it makes no sense to compare an all-stocks portfolio return with a portfolio that is part stocks, part bonds. The risks are different.
If your broker fails after a fair comparison, then it is entirely reasonable to move your money. If you move your money to either Vanguard or Fidelity, a self-managed brokerage account would give you the widest choice. At Vanguard, a broad index fund, such as Vanguard Balanced Index, is a good choice. At Fidelity, the comparable risk managed fund is the Puritan Fund. It has performed in the top 10 percent, or better, of balanced funds over the last 10 years and in the top 12 percent over the last 15 years. Both funds are no-load.
Q. A friend of mine predicts dire things for the economy and society in general, due to the massive spending, debt and printing of money, and the state of things in other countries, such as Greece. He predicts a domino effect, starting with something like Greece collapsing, leading to, as he puts it, Armageddon.
He recommends putting most of one's money into physical gold or silver. I would appreciate your opinion on the likelihood of such a massive collapse of the economy and society as predicted by my friend. —R.V., by email
A. The problem with the "sell-everything-buy-gold-and-silver” response to the very apparent problems of this world is that it is all-or-none thinking. That kind of thinking doesn’t work very well in our daily life. And it certainly doesn’t work very well in our investment life. Diversification may not be the perfect solution, but it is a workable response to uncertainty.
Another problem with the put-it-all-in-gold-and silver approach is that it seems to assume that your dollars will be worthless, but you’ll still be able to shop at your favorite well-stocked store, whether it is Wal-Mart or Nieman Marcus. A truly major crisis won’t happen that way.
While the hard-money crowd likes to think of paper dollars as worthless “fiat money” and gold or silver as “real money,” the reality is that in a true crisis, the only stuff that will have value is the things we like to buy with money— food, water, medical supplies, gasoline, electricity and the other necessities of daily life.
So if you’re going to travel the Armageddon trail, think about it realistically. Then prepare accordingly. That means having water, food, provision for recharging electronics, for heat, and essential medical supplies. After that, maybe some silver coins as a reasonable tool of exchange in a mostly barter world.
Is that extreme? I don’t think so. Just for starters, imagine every major urban area in America without Prozac. It’s not a pretty picture.