I have a real estate fund in my 401k portfolio, Fidelity Real Estate Invs (FRESX). Like all other real estate funds lately it has performed poorly this past year, yielding a -21% loss. I am not contributing to this fund any longer (company changed hands), however it is still being managed. I have ~ $20k in the FRESX.

Should I liquidate this fund and spread the money across my other 5 funds (fid balanced, fid div international, sp500, fid low price stock, af washington mutl)?

As mentioned above this real estate fund has done very poorly and I'm not hearing good things about this sector for the up coming year.

Your opions are appreciated and welcomed.

Thanks
Tony

Why aren't you buying more?

This is exactly why professional advisors are important. When dealing with mutual funds, now would be the time to ADD real estate positions to your portfolio, not sell them off. If you are uncomfortable with Fidelity's fund manager, then switching companies would not be bad, but you are not putting yourself in the best position to profit from market volatility by acting this way.

Sure, this may last another year or so, and there might be some more downward ways to go. So, if you believe that, then dollar-cost-average your way into a position over the coming year or two. You'll be thankful you did when real estate turns around and you are able to capitalize on the upward momentum.

What you should be doing, is continuing to put money into your 401k, including your real estate fund. You are buying it on the cheap as it goes down in value. Take advantage of this. It's the ONLY way for you to maximize the ride up. Rebalance your portfolio every year, which will basically sell your winners and buy into your losers. This is how you should be doing it, not buying winners and selling losers, as you are doing.

I've got to admit, my suggestion would have been to leave the real estate fund as is, but not contribute further for another year or so while the market reaches bottom, then get back in on the slow upturn.

That's just my opinion, though.

[quote=Mynion;6042]Why aren't you buying more?

The reason I'm not buying more is because the company I was working for was bought by another company. The new company doesn't offer a real estate mutual fund. I agree if I could contribute I would have kept it and bought low. The original 401k from the old company is still be managed but I can't contribute to it. The new company is in the process of determining what they should do with the old company 401k money. I'm thinking they are going to transfer some of the funds over so that we have more selection of funds. Hopefully the real estate fund will be one of those, but it won't be anytime soon.

So now with this bit of information what would be your suggestions?

1) Hold what I have and see the money diminish without being able to buy more shares at a low price.

2) Liquidate the fund and distribute across my other funds that are holding up well.

3) Do either 1 or 2 plus contribute to the real estate fund with my new company if and when it's ever offered.

Thanks again!

Investing is an asset allocation challenge first and foremost. If your target asset allocation states that you should have 10% of your portfolio in real estate, then that's what you should continue to have.

What happens is that your real estate mutual fund is falling in value, and you no longer have 10% of your asset allocation in real estate. Now it's 5% or whatever. Well, you need to buy in to get that up to 10%. If it continues to fall, you'll find yourself buying more of it later to get your allocation back up to 10%.

Then, when the market rebounds, or the fund manager finds new ways to generate a profit, your 10% allocation will begin to creep up to become more of your portfolio. Next thing you know it's 15%, or 20%. Because you have more units (because you bought on the "low"), it goes up more quickly. Now you sell off part of your shares in order to bring your allocation back down to 10%.

This is called "buying low and selling high", and is one reason why a long-term diversified portfolio works.

If you sell off what you have now, you are locking in those losses. The problem is, unlike other non-tax-deferred investments, you cannot do any sort of tax harvesting with a 401k.

Your new company will allow you to roll over your old 401k into the new one. If you are concerned with the investment choices of your new 401k, then ask if they'll allow you to roll that old 401k over into your own IRA. Then you can open up an IRA account and buy whatever you wish.

To be honest, most of my clients do not invest in any equities or equity mutual funds inside their 401k's or IRA's.

Yes I understand that and totally agree with you. If I was still contributing to the real estate fund I would not alter anything. I would ride it out knowing that I'm buying shares at a low price.

But this is not my situation . My situation is what I had explained before. Also the new company is not going to allow us to roll over the old 401k into an IRA. That has already been determined. They are also very slow in rolling out a plan to combine the old plan with their plan. And again, their plan doesn't include a real estate fund as of yet. It will be 2 years in May when the new company took over and the 401k thing is still not resolved.

So again, given my specific situation, what would be your recomendation?

- I can't contrubute to a real estate fund in the old or new plan
- I can't roll-over the old plan into an IRA

Then you are most likely stuck... just choose the best you can of the new investment choices, minus the real estate. You can rebalance everything once there are more choices to choose from. Do not liquidate the existing real estate fund, as now would be the absolute worst time to do so. And again, you can't benefit tax-wise from taking that loss.

Remember, a plan sponsors have a fiduciary responsibility to deal with this whole situation in an appropriate manner. Legally, they are acting as sort of your "trustee", and have a legally binding obligation to act in your best interests. This gives you more leverage than you might think. If you don't like how things are being done, then put some pressure on them. This is many employee's life savings we are talking about, not some little bank savings account.

Personally, I think it was wrong for them to not offer you the opportunity to rollover out of the old plan, if you didn't like aspects of the new plan. While this may have been done to secure the assets for the new plan, the fact is you are changing someone's investment choices and they shouldn't necessarily be "forced" into them. This can, and has, created lawsuits against plan sponsors and employers.

My clients use their 401k's/IRA's pretty much as bond portfolios, and securities investments are all outside, so I don't deal with this situation all too often. And if I do, it's typically easy to handle.

Thanks for your suggestions. One more question. Since I plan to keep the real estate fund now, but can't contribute any more to it do you think it is wise to shift money into the real estate fund from other funds in the old 401k plan? I'm allowed to shift money between any funds that are in the old plan.I was thinking about re-adjusting for my predefined assest allocation percentages. This way if I put more money into the real estate fund it's about the same as contributing...to some degree. At least I'm taking advantage of the lower price.

Yes, TonyLS, that would work just fine!

Just make sure you take a long, hard look at your asset allocations on a big picture level. You may find that after the run up the past few years you may have a bigger portion in real estate than you had thought.

Also, as always, make sure the fund is worthy of owning.