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Fidelity Capital Preservation Fund

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T Fades
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Fidelity Capital Preservation Fund  Reply with quote  

Hi. I am 34 and my company uses Fidelity for 401(k) investing. I am considering transferring my 401(k) balance from Equities to Capital Preservation Fund. My goal in doing this is to minimize any loses in the event of a market correction.

Question for all of you: what could cause the Capital Preservation Fund to drop? Is it tied in with the bond market? What I fear is that when interest rates rise, the bond market will fall, and if my entire balance is in the Capital Preservation Fund, it may take a huge hit.

Thanks!
Post Fri Jun 20, 2014 5:03 pm
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blixet
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Do you have a ticker symbol for this fund? I couldn't find any fund by that name on the Fidelity website.

Information is more valuable sold than used – Fischer Black
Post Fri Jun 20, 2014 6:41 pm
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T Fades
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There is no ticker symbol for this fund.

Per Fidelity's website, "The fund invests in fixed income securities which may include United States Treasury bonds, government agency securities, corporate bonds, mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities. The fund may also invest in investment contracts offered by major insurance companies and other approved financial institutions. Investment contracts provide for the payment of a specified rate of interest to the fund and for the repayment of principal when the contract matures. Participant withdrawals and exchanges are paid at book value (principal and interest accrued to date) during the life of the contract. A small portion of the fund is invested in a money market fund to provide daily liquidity. All investment contracts and fixed income securities purchased for the fund must satisfy the credit quality standards of Fidelity Management Trust Company. The interest earned on investments in the fund is credited by allocating additional units. The fund attempts to maintain a $1.00 unit price but cannot guarantee that it will be able to do so."
Post Fri Jun 20, 2014 7:14 pm
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blixet
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OK, just a couple of general thoughts. The info you've provided raises as many questions as it answers so I can't be more specific. I would think that reading the prospectus should help out quite a bit though.

The fund does have the potential to be tied to some segments of the bond market. As such, your concern regarding the inverse relationship between interest rates and bond prices is valid. But much depends on the weighted duration. The insurance contracts may act as a stabilizer, similar to how a stable value fund works. How much effect would be realized would depend on the actual allocation percentages.

There is also credit risk to consider, since the section you quoted isn't specific about what satisfies "the credit quality standards of Fidelity Management Trust Company." This applies to the credit quality of the insurance companies that provide the investment contracts as well.

That a stated goal is for the fund "to attempt to maintain a $1.00 unit price..." makes it sounds similar to a money market fund in that respect, although it is clearly not. The implication that I pull from this is that the average maturities are short and credit ratings high.

All in all, I wouldn't expect that you would be at risk of a high probability of taking the "huge hit" which concerns you. Depending on your time horizon and ability to stay the course, you'd be acquiring shares at a lower price and earning an increasingly higher rate as securities mature and re-investments are made at higher coupons. Again, the duration is key here.

In any event, relative to the risk of loss in the short term compared to equities, this fund seems pretty tame. The problem, of course, is whether or not a fund with the stated goal of capital preservation rather than capital appreciation is appropriate for your personal circumstances. That would be something to determine before you make your choice.

Information is more valuable sold than used – Fischer Black
Post Fri Jun 20, 2014 8:22 pm
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T Fades
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Appreciate your time, Blixet!

My intention to move my balance from Equities to this Capital Preservation Fund is only short term.

Like a lot of people, I lost about 35% of my portfolio in 2008. I have since recovered from that and have a decent amount in my 401(k) now. I am trying to minimize that kind of loss this time when the stock market makes a correction from the current bubble.

Eventually, not today or next week, but soon, when it appears the stock market is correcting from the current bubble, I plan to move my balance from all funds into this Capital Preservation Fund. I hope to wait out the storm and once the market appears to be getting better again, will move back into Equities.

My fear in doing this though is 2 things, 1) I never like to put all my eggs in one basket, and 2) knowing interest rates ARE going to rise, that will cause the bond market to fall, which would hurt this CPF. I called Fidelity, and they are not able to tell me the % of bonds vs securities in this fund, which is a little alarming.
Post Fri Jun 20, 2014 8:30 pm
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oldguy
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>>>>> I hope to wait out the storm and once the market appears to be getting better again, will move back into Equities. >>>>>>>>

I sometimes hear investors say "I'm waiting for the Market to recover so that I can buy back in". Think about that for a minute - they're waiting for the Market to go substantially higher so that a trend is established - so that they can buy.

Fact - the 'hold and accumulate' index clients are beating 85% of the professional fund managers who are working full time to time the Market. Very Happy [/quote]
Post Fri Jun 20, 2014 9:40 pm
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T Fades
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Yea the key is to get back in BEFORE it goes back up, which is hard to time.

If the 'hold and accumlate' clients you refer to stayed in the Equities during the fall, they lost a lot. Even though they are in it at the bottom when it starts going up, it will take some time to re-coup their loss.

I am hoping to temporarily preserve my balance. Once the fall occurs, I will get back in. I may get back in while it is still falling. I am not going to wait until it has a long period of time rising. Would be too late then.
Post Fri Jun 20, 2014 10:52 pm
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oldguy
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BEFORE it goes back up, which is hard to time
quote:



My point is - that is what EVERYONE tries to do - always - and almost NO ONE has done it - including the professional fund managers. That is why the "hold & accumulate" are the winners for nearly any 25 or 30 yr period that you care to look at.

During one 23-yr study the "get out - buy back clients" literally got less than a 3%/yr average return during a 23-yr, 14%/yr Market - ie. snatched defeat out of the jaws of victory. After that particular era, Warren Buffet mocked the fund managers with "the smart money became the dumb money".

""If the 'hold and accumlate' clients you refer to stayed in the Equities during the fall, they lost a lot. ""
Not really, the Market is currently at an all-time high - so anyone who has been 'in the market' for the past year, past 5 yrs, past 25 yrs, past 50 yrs, and so on, has done very well. Remember, they were buying cheap shares all thru the low periods.
Post Fri Jun 20, 2014 11:34 pm
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T Fades
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Yea, I get what you are saying, and I appreciate your comments. Lots to think about.
Post Sat Jun 21, 2014 12:15 am
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