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Ok, I'm trying to get my head around every aspect of investing.
I want a very diversified portfolio and prefer ETF's as opposed to standard mutual funds.
So far I have these areas:
Equities
-US Total Stock Market (VTI)
-MSCI EAFE Index (EFA)
-MSCI Emerging Markets Index (EEM)
Bonds
-Aggregate Bond Fund (AGG)
Real Estate
-US Real Estate (IYR)
-World ex. US Real Estate (WPS)
Gold
-iShares Gold (IAU)
Oil
-Crude Oil Total Return Index (OIL)
I'm really unsure if the Real Estate, Gold, and Oil are even necessary at all. So I'd appreciate any expert advice on whether I should even worry about these. Or maybe there is something I've totally missed. Thanks!
In very broad terms, alot of "diversification" talk from the investment community is just salestalk, it's way overused IMO. It's a way for investment "pros" to cover their backside in case your portfolio goes down.
-If it goes up, great. Diversified or not.
-If it goes down, the standard mantra is "get diversified"!
Warren Buffett for example, he doesn't believe in diversifying just for diversity sake.
If I went to a mall looking to invest in a store, I wouldn't necessarily diversify into 10 or 15 stores, just because that's the thing to do. They all might be lousy investments. Or one store could completely out perform the next 10.
That's just one view...maybe others will chime in.
Oil, gold and commodities tend to go counter to stocks...if the 5 areas are equally weighted, it seems like they'd cancel each other out.
How has this group performed over the past 10-20 years?
I was just helping my son with his portfolio... here is some of the text cut out of a recent email...
10% fixed income
- I use some FNMIX, FAGIX, But most of my fixed is taxable and in munis.
15% emerging markets
- ADRE or VWO for broad exposure, GXC, FXI, or PGJ for China
15% international
- I use FSIIX (JIEIX in moms 401) for overall with DLS for Europe SC, DBN for material exposure and DNH for Asia
10% real estate
- I use VNQ
10% small cap
- I use VB
05% small cap value
- I use VBR
15% large cap
- I just use FSMAX but it has a minimum.. I suggest VV or similar
10% large cap value
- I use VTV
10% discretionary
- whatever
If you want to invest without having to watch the portfolio extremely closely this passive diversification plan works extremely well and back tested shows it will return over 12% annually in the long term. Since I am retired I have a slightly higher percentage in fixed income but generally use this plan and have helped a number of people do the same with very good results.
Ok, I'm trying to get my head around every aspect of investing.
I want a very diversified portfolio and prefer ETF's as opposed to standard mutual funds.
So far I have these areas:
Equities
-US Total Stock Market (VTI)
-MSCI EAFE Index (EFA)
-MSCI Emerging Markets Index (EEM)
Bonds
-Aggregate Bond Fund (AGG)
Real Estate
-US Real Estate (IYR)
-World ex. US Real Estate (WPS)
Gold
-iShares Gold (IAU)
Oil
-Crude Oil Total Return Index (OIL)
I'm really unsure if the Real Estate, Gold, and Oil are even necessary at all. So I'd appreciate any expert advice on whether I should even worry about these. Or maybe there is something I've totally missed. Thanks!
Just an opinion but I think it's too "Too diversified" AND the wrong funds in a couple situations.
US Real Estate just doesn't seem like a good fund to invest in right now. You may have the attitude you are buying stocks on sale... but this is potentially akin to buying into the Tech sector in 1998... I just wouldn't do it right now.
US Total Stock Market also seems like a bad idea. It's essentially an index fund and in combination with several negative economic indicators and the realization that as a whole it isn't likely to see massive gains even if everything goes ok - I think you'd achieve the same result but with much more safety with a money market fund. Personally I'd just reallocate this money into one of the other fund finalists in your portfolio.
The rest is fine but my temptation is to tell you to focus your investments a bit more.
Gold and Oil, well those have historically gone up - if you think that will continue then certainly there's a history of success there. I never paid them much attention in the past and wow has that been an oversight! Read up on the high-level articles and predictions for this space just to confirm that now is the right time to put money into them (I honestly don't know).
International real estate doesn't seem like a bad idea but I might go a step further and say that you might want to stick to "emerging markets" real estate for real growth potential. In previously 3rd world economies which are being built up through outsourcing and trade with superpowers like the US and European countries alike. I suspect we are already or soon will be seeing emerging middle classes where there weren't ones previously. These folks and the new affluent in general historically drive up real estate values where ever they are.
One last suggestion. I've always done well with small/medium company funds, during up and down economic situations alike. It seems rather logical to me especially for the "value" funds in this space that there's great potential for growth. Just food for thought.
Ok, I'm trying to get my head around every aspect of investing.
I want a very diversified portfolio and prefer ETF's as opposed to standard mutual funds.
So far I have these areas:
Equities
-US Total Stock Market (VTI)
-MSCI EAFE Index (EFA)
-MSCI Emerging Markets Index (EEM)
Bonds
-Aggregate Bond Fund (AGG)
Real Estate
-US Real Estate (IYR)
-World ex. US Real Estate (WPS)
Gold
-iShares Gold (IAU)
Oil
-Crude Oil Total Return Index (OIL)
I'm really unsure if the Real Estate, Gold, and Oil are even necessary at all. So I'd appreciate any expert advice on whether I should even worry about these. Or maybe there is something I've totally missed. Thanks!
Here is a very useful tool to track how your investments perform. You can track as many as 10 items over a variety of time frames. It's a lot of fun to move the slider around to see much money you would have made if you bought at the right time. You can go back to as far as 8.5 years to check prices. You need to move the cursor over the lines to find prices. Take a few minutes to read the instructions and you will have one of the most important and useful investment tools available. Master the charts and you won't need a second opinion.
I should've dug a little deeper into Vanguard's ETF's as they have much lower fees than iShares. Thanks to cdelena for that.
I'm coming closer to my Ultra-Diversified Portfolio. After using the stock chart that davidt1 linked me to, I was able to see how the different funds compared with one another, not just for returns, but whether or not they were parallel returns or opposite.
I know some may consider this kind of portfolio "too" diversified and that everything will cancel each other out, but I think with cost averaging over time the returns should be decent and with below average risk. But you never know.
In very broad terms, alot of "diversification" talk from the investment community is just salestalk, it's way overused IMO. It's a way for investment "pros" to cover their backside in case your portfolio goes down.
-If it goes up, great. Diversified or not.
-If it goes down, the standard mantra is "get diversified"!
Warren Buffett for example, he doesn't believe in diversifying just for diversity sake.
If I went to a mall looking to invest in a store, I wouldn't necessarily diversify into 10 or 15 stores, just because that's the thing to do. They all might be lousy investments. Or one store could completely out perform the next 10.
That's just one view...maybe others will chime in.
Oil, gold and commodities tend to go counter to stocks...if the 5 areas are equally weighted, it seems like they'd cancel each other out.
How has this group performed over the past 10-20 years?
Diversification works best if you manage huge amount money like a mutual fund over a long period of time - ten years or longer. Fund managers have to diversify of out necessity. Although I don't diversify, I can see how diversification might be good for some people. Buy one of them EFTs or mutual funds and get you the benefit of diversification by participating in a whole sector without a large capital investment. For comparison, I mixed six investments on a chart.
SPY is an ETF based on the S&P 500
FDEGX is Fidelity aggressive growth mutual fund
FDIVX is Fidelity diversified international fund
INTC is intel
FOSL is some company that makes watches and fashion accessories
HANS is some company that makes beverages
The companies I chose are not the best performers on the market. In fact I wouldn't touch INTC at all, but I put it in the chart to show that even an average stock can do better than some managed funds. To see how great stocks perform, put in GRMN, RIMM, BIDU, and POT. Lest people misunderstand, I think people should stick to investments they are comfortable with.
Diversification works best if you manage huge amount money like a mutual fund over a long period of time - ten years or longer. Fund managers have to diversify of out necessity. Although I don't diversify, I can see how diversification might be good for some people. Buy one of them EFTs or mutual fund and get you the benefit of diversification by participating in a whole sector without a large capital investment. For comparison, I mixed six investments on a chart.
SPY is an ETF based on the S&P 500
FDEGX is Fidelity aggressive growth mutual fund
FDIVX is Fidelity diversified international fund
INTC is intel
FOSL is some company that makes watches and fashion accessories
HANS is some company that makes beverages
The companies I chose are not the best performers on the market. In fact I wouldn't touch INTC at all, but I put it in the chart to show that even an average stock can do better than managed funds. To see how great stocks perform, put in GRMN, RIMM, BIDU, and POT. Lest people misunderstand, I think people should stick to investments they are comfortable with.
I think its important to note, however, that choosing a stock that will outperform the market is not necessarily an easy task. All one has to do on the chart you provided is to change the stocks you provided to some other common names: Circuit City (CC), Starbucks (SBUX), and AMD (AMD) to see how wrong certain stocks can go.
In early 2006 all 3 of these stocks were performing very well, but they obviously don't any longer. A seasoned investor may be able to see these turns in stocks before they happen and avoid the downfalls, but I think most of us lack that much skill.
I've been burned on several stocks in the past, and that's why I choose to diversify with the majority of my portfolio. I think I probably will still dabble in picking some stocks for fun, but I won't put much faith in it.
I think its important to note, however, that choosing a stock that will outperform the market is not necessarily an easy task. All one has to do on the chart you provided is to change the stocks you provided to some other common names: Circuit City (CC), Starbucks (SBUX), and AMD (AMD) to see how wrong certain stocks can go.
In early 2006 all 3 of these stocks were performing very well, but they obviously don't any longer. A seasoned investor may be able to see these turns in stocks before they happen and avoid the downfalls, but I think most of us lack that much skill.
I've been burned on several stocks in the past, and that's why I choose to diversify with the majority of my portfolio. I think I probably will still dabble in picking some stocks for fun, but I won't put much faith in it.
No, you don't have to be a seasoned investor to avoid losing big. But losing a little is part of doing business. If only people would use a simple money management technique known as stop loss, huge losses could be avoided. Say you bought a stock at $10 and set a stop loss of 20% or $2. If you are wrong and it goes down, you would lose 20% of your money. If it goes up, all you would have to do is keep raising the stop loss to protect your gain. You said you got burned on several stocks, but you didn't say how much you lost. If you lost between 8% - 20%, then that is an acceptable loss. It's part of doing business. If your loss was a lot more, then you kept your losers for too long. Look, I am not trying to talk anybody into buying stocks. In fact, I am grateful that mutual funds and ETFs exist. Without them, there would be no liquidity in the market, and people like me would have no one to trade with.
In very broad terms, alot of "diversification" talk from the investment community is just salestalk, it's way overused IMO. It's a way for investment "pros" to cover their backside in case your portfolio goes down.
-If it goes up, great. Diversified or not.
-If it goes down, the standard mantra is "get diversified"!
Warren Buffett for example, he doesn't believe in diversifying just for diversity sake.
If I went to a mall looking to invest in a store, I wouldn't necessarily diversify into 10 or 15 stores, just because that's the thing to do. They all might be lousy investments. Or one store could completely out perform the next 10.
That's just one view...maybe others will chime in.
Oil, gold and commodities tend to go counter to stocks...if the 5 areas are equally weighted, it seems like they'd cancel each other out.
How has this group performed over the past 10-20 years?
I agree with John about his comments regarding diversification. Why would you want any of your money invested in anything that isn't doing well - especially if you have some time each week to monitor how they are doing.
I also look at 10 and 20 year total returns. For funds I look at who the managers are and how long they've been managing the fund. I look at the year to date return as well. If the fund checks out on all three criterea and it is doing well, I'm in it. I do the same for ETFs minus the management criterea. For individual stocks I buy only those of company's I know are great or those who are doing great in industries that are doing great and i watch those like a hawk. I utilize trailing stop-losses and limit orders to try to get in and out of the market at the right time.
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