Help with Roth IRA - 3 part question?

Question

When I opened my roth ira a few years ago, I was able to select the Market Cap (small, medium, large) and Valuation (Value, Blend, Growth) of my fund. I chose Large and Growth. But recently they've changed my portfolio to Large and Blend.

My questions are:

1) can they do this without my consent?

2) should I be able to change the Market Cap and Valuation aggressiveness at any time?

3) given the market conditions, I'm thinking of doing Large and Value. Do you think that's a good idea?

Thanks in advance for any answers! I don't know a whole lot about investing.

Answer 1

What company are you using?  Your setup sounds a little odd to me.  That is, if you select a fund or a style (or year) for investment, they should not change it without your consent.  No decent company offering an IRA product would.  Now, of course, you realize that there are many indecent <g> companies out there.

1) If they have, they probably can.  Why on earth would they, though?  

2) Sounds like you need to change the company.  You can move an Roth IRA to a different custodial company at anytime.

3) Irrelevant.  The market cannot be timed in the long run.  You will only make yourself crazy trying to pick the next winner.  The correct choice for a long term investor is an ALL CAP Blend Index fund.  Fidelity and Vanguard's Total US Market Index Funds are the best choices.  Once you have $50/60k saved up in that one, add the Total International Market Index Fund and then you are done until you get within 5 years of retirement.  (You are aiming for 60% US; 40% international)

Set it and forget it.

Answer 2

1) No. No one but you can change your investments, holdings, etc without your prior consent. Any action that did this without your permission, would be a violation of securities law. "unauthorized trading."[1] The broker and firm can be sued and disciplined by the SEC or other regulating SRO.

2) Read the fund prospectus. Mutual fund switching in the same family usually can be done no more than 1 time a day, and many funds will say you can not "trade" or switch funds more than 6x a year.

3) I think you have way too many funds. I would be dollar cost averaging in index funds and holding them for 10-15 years.

S&P 500 Index

Midcap 400 Index

Russel Small Cap 2000 Index.

I would seek a professional live body advisor with 10+ years of market and retirement planning experience if you don't know what you are doing.

Answer 3

1)  Yes

2)  Yes

3)  I really don't have an opinion on that move other than to say that several times I have read that mid and small cap value stocks do better over the long term than large caps.

Answer 4

You did not give us too much to go on here.  Where is your Roth IRA? What specifically did you invest it in?

There is one case where I am aware of where the composition of an IRA account changes automatically.  That is where one has selected a target date mutual fund.  In that case when one gets closer to retirement the fund automatically become more conservative.

I have not heard of changing ones IRA selection without their consent in other circumstances.  Actually, that might be grounds for an arbitration award.  Without knowing the specifics of your account and investment selection, I really have no idea.  You might call them up and ask them what is going on.

You should be able to change your IRA selection when you choose.

I think a better idea is to have a diverse holding in the IRA.  One has no idea what the future might hold.  There is less risk if the holding is diverse--some of each.

Answer 5

1) there is no LAW that says that they can't do this, but if they did it without notifying you first, then they are acting highly unethically.  I wouldn't trust this company with any future business.

2) yes, you should be able to pick any investment mix you desire at any time, though frequently changing your style will likely lead to underperformance.

3) do whatever you feel more comfortable with, but know that changing your mind too often can cost you a lot of money in the form of transaction costs.

Answer 6

how many funds do you own? if multiple funds, when was the last time you re-balance your portfolio? it could be a matter of a bond fund out performing your stock funds, thus changing the investment ratio of your portfolio. if it was a time-line specific fund, it may have been a growth fund which has become more blended. also, it may be that some of the companies held within the fund have changed in terms of their definition, but the fund manager hasn't sold them, because they are still good performers. there are any plethora of other possibilities, but those would be the most obvious.

I think you should re-balance your portfolio on an annual basis. it's an opportunity to double-check your investment objectives, and keep them on track. also, in terms of investments held in the portfolio, it assures that you buy-low and sell-high. a good portfolio is diversified into different market sectors, growth, value, emerging markets, international, and bonds.

call your financial adviser, or use on-line tools, to get your portfolio back on track!