Need a sector asset allocation

[jIM_Ohio]

I am in the process of setting up my wife's Roth IRA. She has had one for about 12 months, and with the raise I just received from work, we are maxing her Roth out ($400/month) for 2008 and will adjust this to $500/month once my Roth maxes in August.

The allocation in all other accounts (for both of us) is
75% domestic stock (45 large-15 mid- 15 small)
25% foreign stock (15 large-10 small)

For her Roth, I decided to do a sector allocation. She has about 1/8 the account balance I do, so I consider this money I can be aggressive with, and I think a sector paradigm is a moderate way to take on slightly more risk for a decent return.

The sectors I can think of:

1) Tech
2) Healthcare
3) Natural resources
4) financial services
5) emerging markets
6) consumer durables

I realize there are micro sectors (like biotech, transportation or similar). Trying to be macro because that is where most mutual funds exist.

I am trying to come up with an asset allocation so I know when to rebalance. We are using T Rowe Price funds. My thought was:

2 Core Funds- T Rowe Price Value (TRVLX) and T Rowe Price Growth (PRGFX) each get 15% to be diversified enough.

The other 70% is a 10% minimum position in each of the following:

PRDTX developing technologies
PRMSX Emerging markets stock
PRISX Financial Services
PRGTX Global Technology
PRHSX Health Sciences
PRNEX New Era (Natural Resources)


10% minimum is 60% spread out to these 6 funds. Meaning I don't rebalance unless one sector is under 10% or one sector is over 21%.

Global tech is her rollover IRA right now with 5k+ in it- this is not getting new contributions for a while until the other funds get enough cash (will take about 8 years with no growth).

I think the rebalance criteria is important because if tech or natural resources have a run up (similar to 1990's), I need an "out" and a plan for where to put money into.

I did not think much about this... so if you see a hole or two, feel free to point out flaws in my plan.

[LivingAlmostLarge]

Why not do ETFs if you want sectors?

[disneysteve]

Why not do ETFs if you want sectors?

Probably because they are DCA investing and the commissions would eat into the account.

[jIM_Ohio]

Why not do ETFs if you want sectors?

All accounts are with T Rowe price already, and we have enough invested with them that fees are waived for IRAs and other accounts.

Plus if this does not work well, I will just shift it to the T Rowe funds I already own.

[gekkoplus]

I recently started contributing $100 each month into each of these sector funds -

New Era
Health Sciences
Latin America.

I have a feeling that I should also start contributing into Financial sector fund as this sector is already down so much and has a great potential to rebound over time. In this case I might change my contribution from 33% to 25% into each fund.

I already have 401K, IRA and Roth IRA accounts with contributions going out monthly. I am investing in the sector funds just to land my additional money somewhere where it has potential to grow but I also have a quick access to the cash when in need it.

[Scanner]

You know me and my opinion on this matter - I think you are overdiversified, especially for $5000.

[jIM_Ohio]

You know me and my opinion on this matter - I think you are overdiversified, especially for $5000.

All input surely welcome. Make sure we all see the big picture.

We have 200k+ already invested in 401ks, rollovers and Roths.

My wife has 10k which is already allocated across some of these funds and within 15 months this should be at 20k. No fees (custodial fees) because our household has 100k+ invested with T Rowe Price.

This move to a sector allocation is one more way I want to invest more aggressively now that we have a significant diversified portfolio.

[Scanner]

Yes, you need more diversity than me, who's barely topping 100K this year.

That being said. . .I would make 1 sector play if I were you in her portfolio and she's not going to freak if there is a 20% loss. I am not sure why you would hold energy, healthcare, technology, etc. in such small amounts.

Remember, at this point too, I think you should be speculating.

[jIM_Ohio]

Yes, you need more diversity than me, who's barely topping 100K this year.

That being said. . .I would make 1 sector play if I were you in her portfolio and she's not going to freak if there is a 20% loss. I am not sure why you would hold energy, healthcare, technology, etc. in such small amounts.

Remember, at this point too, I think you should be speculating.

I will overweight sectors, but not eliminate one to add another.

For example I want to accumulate financial services right now for a rebound in 2-3 years. Buying low. At same time I think tech is where the next surge will occur, so I am accumulating there.

I don't want to move money between tech and financial services though- I am not exempt to frequent trading fees (at T Rowe).

It might be too many, my 5 year plan is to add to the funds listed, always overweighting one sector with larger deposits than others (financial services is overweight now). As I get enough assets in this one account (thinking 25-35k) I will xray and compare to rest of portfolio.

The actual performance of the account is something my wife would know very little about- she doesn't even open the account statements.

[LivingAlmostLarge]

I agree about the overdiversification. How much is going into each fund exactly?

I haven't gotten into sectors enough because we don't have enough saved either.

[jIM_Ohio]

I agree about the overdiversification. How much is going into each fund exactly?

I haven't gotten into sectors enough because we don't have enough saved either.

Total IRA deposit will be $400 month right now. When my IRA maxes in August it will increase to $1025 until 2008 is maxed (I think $1500 is the current year contribution thus far, but I need to confirm Jan-April were counted as prior year contributions).

Each fund gets $50 (Financial services, health care, emerging markets, new era and developing tech, plus Value and Growth too). 7*50=$350. The extra $50 is my overweighting to one sector (financial services for next 2-3 years).

The account already has 4k+ of global tech in it
The account already has 5k+ of Africa and middle east in it

[zetta]

Total IRA deposit will be $400 month right now. When my IRA maxes in August it will increase to $1025 until 2008 is maxed (I think $1500 is the current year contribution thus far, but I need to confirm Jan-April were counted as prior year contributions).

Each fund gets $50 (Financial services, health care, emerging markets, new era and developing tech, plus Value and Growth too). 7*50=$350. The extra $50 is my overweighting to one sector (financial services for next 2-3 years).

Rather than putting $50 in each fund each month, why don't you just put $400 toward one fund each month, rotating among them?

[jIM_Ohio]

Rather than putting $50 in each fund each month, why don't you just put $400 toward one fund each month, rotating among them?

Then I would need the fund minimums to open the account, where as the $50/month waives the minimums if I contribute the $50 each month.