Is this a good way to build a portfolio?

**jIM_Ohio** · 10-23-2008, 03:15 PM

Originally posted by StepRightUp View Post

Hi guys,

I've been absorbing a lot from these posts and elsewhere over the past few days. I'm trying to make serious and informed decisions as I embark upon a portfolio.

In general, I'm looking at long-tern aggressive growth - mostly retirement.

Let's say I have a sum of $29,000 allocated for investment purposes, distributed between a Fidelity Roth IRA, an old Vanguard Annuity from a former employer, and an ING savings account.

In search of appropriate allocation and diversification, here's what I've come up with. The funds are some that I've found through Fidelity only, for simplicity's sake. And it's not the particular funds that I'm concerned with at the moment. Right now, I want to know.....

Is my methodology sound and are my percentages appropriate?

So based on my goal, I'm looking heavy in stocks. Within that, I need to spread it between large/small/mid/international...Pulling up the the rear are bonds, then cash:

$29,0000

Large-Cap 45% $13050
Mid-Cap 15% $4350
Small-Cap 10% $2900
International 15% $4350
Bonds 10% $2900
Cash 5% $1450

With this info, I took a look at certain funds that would help fill these distributions and then allocate a proportionate amount of my Bankroll to each based on its allocation (again, I'm not looking for feedback yet about the Quality of each fund):

Large-Cap Blend : Fidelity Freedom Fund (FFFFX)
$15,045
Stocks 83% $13050
Bonds 12% $1805.4
Cash 5% $189.60

Small-Cap Growth:Fidelity Small Cap Growth (FGPGX)
$3,021
Stocks 96% $2900
Cash 4% $120.83

Mid-Cap Blend: Fidelity Value (FDVLX)
$4,439
Stocks 98% $4350
Cash 2% $88.78

International (Large-Cap Growth): Fidelity Int'l Discovery (FIGRX)
$4,677
Stocks 93% $4350
Cash 7% $327

The above leaves $1,095 left for Bonds and $723 left for Cash that needs a home.

Is this methodology a prudent way to build a portfolio?

Thoughts on method and percentages?

Thanks everyone

What you are doing will work. The issue is that Fidelity Freedom I believe is a target date fund and that allocation of stocks and bonds will change each year. It also holds many different kinds of stocks-domestic and foreign- which it does not appear you accounted for.

You might want to either
a) just choose the freedom fund
b) only choose funds which invest in a portion of the market (large cap-mid cap-small cap-international-bonds) as a seperate fund.

b) is important to consider- because your break down did not list what the 83% stocks in Fidelity freedom were- most of this is large cap (guessing around 70%) and the other 13% is mid and small cap. Maybe some foreign (in which case the 70% above is close to 50 or 60%).

You have done well deciding this is what you want

Large-Cap 45%
Mid-Cap 15%
Small-Cap 10%
International 15%
Bonds 10%
Cash 5%

I bet it will be easier to find 1 large cap fund at Fido, then put 45% there
then choose a mid cap fund and put 15% there
then choose a small cap fund and put 10% there
then choose an international fund and put 15% there
then choose a bond fund and put 10% there

what you are doing will require a portfolio xray once per year to determine if you need to rebalance. I prefer to just look at my account statement and save me some time.

What you are doing and how you are analyzing the problem will work, just nail down the exact holdings of the freedom fund.

**StepRightUp** · 10-23-2008, 03:43 PM

Jim

I just took a closer look at the Freedom Fund. Correcting the allocations within the fund, it appears that contributing just over $26,000 of the $29,000 to that fund nearly matches the percentages. Small Cap is light by about $1,500; Mid-Cap by about $700; and Cash by about $250.

FFFFX $26,633
Fidelity Freedom Fund
Large Cap 49% 13050
Mid-Cap 13% $3,462.24
Small-Cap 5% $1,331.63
International 16% $4,261.22
Bonds 12% $3,195.92
Cash 5% 1198.47

My Target Allocation from above is:

$29,000

Large-Cap 45% $13050
Mid-Cap 15% $4350
Small-Cap 10% $2900
International 15% $4350
Bonds 10% $2900
Cash 5% $1450

I'll think on it further. Thanks.

~Jim

**jIM_Ohio** · 10-23-2008, 04:31 PM

I would not quibble much if fund is off on small caps by 5%. Most people would not rebalance until a fund was off by 5% or 10%.

The idea that stocks% and bonds% is close to what you want should get you the return your original allocation suggested, with much headache removed from you.

**atomicrc11** · 10-23-2008, 07:51 PM

I like the Fidelity Freedom Funds and most target date funds in general. Since 401ks or 403bs don't have minimums I go with other funds, but for my Roth IRA, until I have a larger sum of money, the Freedom Funds are a great way to go. I know people who own the Freedom Funds with all of their retirement money.

Is this a good way to build a portfolio?