It has been five months since I started using the Fidelity Go robo-advisor. The first four months were fairly straight forward. I was happy enough with how it was working, but did not really learn much because the markets were relatively calm.

Then the stock market fell about 30% in the last month. This market selloff has provided quite a stress test for Fidelity Go. Spoiler alert: Fidelity Go has performed exactly as it should in these market conditions.

First – Why RoboAdvisors

If you’ve read any of my investing advice, you know that rebalancing is the key to manufacturing shares in both up and down markets. I touch on it in this article about diversification. Plus, Managing Investments is nearly half of the content in my book.

When I first started using Fidelity’s RoboAdvisor, I published a review of Fidelity Go with an overview of how it works, the expenses, and the potential downsides. Keep reading for an update on how it has actually worked in one of the biggest and fastest stock market declines in history.

Disclaimer: I am not an affiliate of Fidelity or Fidelity Go. I won’t get paid if you sign up. I’m not recommending their product. I am just describing my understanding of how it works. You should do your own research and be sure that you understand what you are getting into whenever you invest your money.

Fidelity Go – How has each fund performed?

Yes, markets are down significantly. All of the numbers in the rest of this article are for the period between February 19, 2020, when the markets closed at all-time highs, and Friday, March 20, 2020.

The S&P 500 has lost 32% of its value. The Dow Jones Industrial Average is down 35%. The NASDAQ is off 30%. And, it all happened in one month.

Inside Fidelity Go, there are seven investments: Large Cap Stock, Mid Cap Stock, Small Cap Stock, International Stock, Investment Grade Corporate Bonds, Conservative Bonds and Cash.

Yes, the markets are down. But not all parts of the portfolio have had big losses.

  • Cash has lost nothing.
  • Conservative Bonds have maintained 98% of their value.
  • Investment Bonds have maintained 97% of their value.
  • Large Cap Stocks are down 32%, Mid-Cap Stocks are down 38%, Small Cap Stocks are down 40%, and International Stocks are down 31%.
Chart showing the performance of investments inside Fidelity Go through March 20, 2020

So, if you had invested in Fidelity Go at the peak of the market, some parts of your portfolio are nearly untouched by this market free-fall. How much of your investment has been stable depends on which portfolio you selected.

Fidelity Go – How has each portfolio performed?

Fidelity Go has seven portfolios ranging from 80% bonds and cash to 15% bonds and cash.

Chart showing the allocations of Fidelity Go portfolios

Of course, the portfolios with a greater proportion in bonds and cash have maintained significantly more of their value than portfolios heavy in stocks. Fidelity Go is doing exactly what it was designed to do.

Chart showing the performance of the Fidelity Go portfolios February and March 2020

The Fidelity Go Conservative portfolio is still worth 92% of it’s maximum value. Each portfolio has seen a progressively larger impact of this downturn as you move toward Aggressive Growth, which is down 28% from its peak.

Again, Fidelity Go is performing exactly as it is supposed to.

Fidelity Go Rebalancing

In the last month, cash and bonds inside Fidelity Go accounts have remained relatively unchanged. But, stocks are down between 30% and 40%. As a result, all seven portfolios have a higher percentage of bonds than their ideal allocation. So, Fidelity Go will automatically (if they haven’t already) execute the trades necessary to get your portfolio back into balance.

That means they will sell bonds at nearly 100% of peak value and buy stock at 30% to 40% less than what they would have cost a month ago. As of 3/20/2020, and prior to rebalancing, each portfolio allocation is off by about 5% of invested assets.

Fidelity has not released any information about how their algorithm decides when to rebalance. I do know from my own experience and talking with other Fidelity Go customers that some accounts have been rebalanced and others have not (as of 3/20/2020). But, I am confident that all Fidelity Go customers will see a rebalance before the market recovers.

As a result of buying more stocks when they are about 30% less than a month ago, your portfolio will be able to return to its record value before the market fully recovers.

Let me say that a different way… people who do not rebalance will need the Dow to get all the way back to 29,300 before their accounts are back to the value they were on 2/19/2020. However, people who rebalance will be back to their peak value before the markets fully recover. That is because rebalancing manufactures new shares.

The Trade Off between Risk and Reward

This is a perfect time to illustrate something that economists have been saying since the dawn of economics: there is a trade-off between risk and reward.

Generally, if you reduce your risk exposure, you should be better protected from negative shocks. Well, the Fidelity Go Conservative Portfolio has maintained 92% of it’s value during one of the biggest and fastest stock market declines in history.

However, there is a trade-off. By protecting yourself from those losses, you are also limiting your upside potential. Historically, stocks have had a much higher long-term growth rate than bonds. So, by having a small percentage of your portfolio in stocks and a larger percentage allocated to bonds, the Conservative Portfolio will likely have a lower long-term rate of return.

Said another way: the Fidelity Go Conservative Portfolio will be more stable than other portfolios. The price you pay for that stability is lower long-term growth rates.

Fidelity provides future value estimates that prove this point.

Fidelity Growth Projections

Chart showing the estimated future value of Fidelity Go Portfolios after 20 years

Using the tools on the Fidelity Go website, for example, they provide estimates of what a $100,000 investment today will grow to in the next 20 years with no additional deposits.

The Conservative Fidelity Go portfolio could grow to $255k , which is about a 4.8% average annual rate of return. And, as you can tell by the last month, you can expect your portfolio to be pretty stable because 80% of your investment is Bonds and Cash.

At the other end of the spectrum, the Fidelity Go Aggressive Growth portfolio could grow to about $429k, which would take an average annual return of about 7.6%. But, in order to get returns like that, you would have to ride the roller-coaster, which has wiped out 28% of your fortune in the last month.

That means that the Conservative portfolio could more than double your money in 20 years. But, the Aggressive portfolio could more than quadruple your money in the same time period. What do you have to do to get that higher return? Take more risk.

That’s the trade-off between risk and reward.

Have the Right Strategy

The bottom line is that you need to determine which level of risk is appropriate for your situation. When I was a financial advisor I noticed that almost everyone I met with had a more aggressive portfolio than they thought. And, as a result, when the markets corrected (which they have done before and will do again), the investors got scared and left the market at the worst possible time.

This is not the time to get out of the market. If your portfolio is doing worse than you can stomach, it is not the market’s fault. It’s not the virus’ fault. It’s not the President’s fault.

It is your fault for having a portfolio that was too risky in the first place.

What does that mean? What should you do if your portfolio was too risky?

Be patient. This market correction will not last forever. They never do. Try to ignore your losses. As Dave Ramsey says, “No one gets hurt on a roller coaster unless they jump off in the middle of the ride.”

When things have calmed down and people are back to work and the markets have started to recover, then you should revisit your allocation. If this downturn was too much for you and you learned that your investments are too aggressive, then after the market recovers you can re-allocate to a more conservative strategy. But, don’t do that now. Don’t panic. Just be patient and be calm.

Final Thoughts

I have been an investor in Fidelity Go for the last five months and couldn’t be happier.

The last month has been one of the biggest tests in the history of the stock market, and Fidelity Go is passing with flying colors.

Every single investment inside Fidelity Go is behaving as it should in this environment.

Every single portfolio option inside Fidelity Go is also behaving exactly as it should.

All of the positives that I wrote about in my first review are still true: diversification, index funds, and low expenses. Plus, now we can see that the portfolios behave predictably in very trying markets.

The one downside that I was concerned about in the beginning is still true. You cannot force a rebalance. If you have Fidelity Go and the markets have dropped by 30% and the algorithm has not rebalanced yet, you may be wondering what it is waiting for. Well, so am I.

But over-all, Fidelity Go has proven to be a great tool to balance risk and reward, be fully diversified, and profit from all market environments.

I hope this has been helpful! I welcome your comments with your thoughts and questions. And, don’t forget to subscribe to the newsletter to get notified whenever a new article is posted.

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