Retirement portfolio question

**MYOM** · 10-12-2008, 06:49 AM

If you are going to invest on your own you should have some idea of how to Manage Your Own Money. What do you know about Asset Allocation? What do you know about Portfolio Construction? Do you have a Buy Strategy? What will be your Exit Strategy? How will you know which mutual fund manager has assembled the better portfolio of stocks? How many funds do you need to own? How will you find a fund to replace a fund you own? How will you track all these funds? Do you have an investment plan in writing that answers all of these questions?

I see that you want to retire at age 50. What is your Path to Prosperity? What are you going to do to get there? How much money will you need to retire?

The best investment you can make right now is in a sound financial education. If I give you a fish I feed you for a day. If I can teach you how to catch fish on your own, you can feed yourself for a liftime.

Dan Clemons retired Certified Financial Planner and Registered Investment Advisor

**jIM_Ohio** · 10-12-2008, 07:06 AM

The actual funds you buy will have the least impact of all decisions made thus far- you could go to Fidelity (you already have 2 fido funds listed) and pick their best funds for each asset class and save yourself considerable time.

**MYOM** · 10-12-2008, 07:28 AM

The problem with picking all your funds from one fund family is that they are correlated. They all feed from the same batch of research. They march to the beat of the same drummer. Then tend to own the same stocks. There is only one fund at Fidelity that marches to the beat of its own drummer and that is Fidelity Leveraged Company. There is no advantage to owning funds that are correlated.

Dan Clemons retired Certified Financial Planner and Registered Investment Advisor

**jIM_Ohio** · 10-12-2008, 08:39 AM

Originally posted by MYOM View Post

The problem with picking all your funds from one fund family is that they are correlated. They all feed from the same batch of research. They march to the beat of the same drummer. Then tend to own the same stocks. There is only one fund at Fidelity that marches to the beat of its own drummer and that is Fidelity Leveraged Company. There is no advantage to owning funds that are correlated.

Dan Clemons retired Certified Financial Planner and Registered Investment Advisor

I agree Fidelity probably has one group of analysts, the same way T Rowe Price probably used one group of analysts.

The issue, IMO, is then choosing funds which would not overlap by philosophy and avoiding obvious issues based on market cap.

For example- an investor does not need more than one large cap fund for diversification. Thsi brings 2-3 factors into play:
1) The S&P 500 are the large companies, there are no secrets in this asset class.
2) Large caps usually represent about 75% of the performance of the broader market- the large companies are just that dominant.
3) If you own a mid cap or small cap fund which owns large cap stocks, you need to question the mid cap or small cap fund.

When choosing a mid cap or small cap fund, you need to ask if the fund is going to hold stocks outside of its market cap, how many, and decide if this is appropriate for you.

I hold (based on FUND allocation)
45% large cap, 15% mid cap and 15% small cap
The market (wilshire 5000) is about
70% large cap, 20% mid cap and about 10% small cap

There will be contention about what is mid cap and what is small cap... provided that 70% large cap is accurate for wilshire 5000, most of the points will hold.

I know my mid cap fund holds some large cap- I know this because I xray it. My fund might track mid cap based on some russell 2000 or russel 1000 index, where as morningstar style box might use the S%P 400 mid cap index, so I can accept the fact my mid cap funds might be 20% large cap, 60% mid cap and 20% small cap.

I know my small cap funds hold around 40% mid cap and 60% small cap. Again depending on the index my fund uses and the index morning star uses, I can accept these deviations.

The mid cap and small cap funds probably have some overlap. The way to deal with this includes
1) only holding one mid cap fund and one small cap fund to fit a given allocation in a given account. I get most of what I need this way, IMO.
2) Owning concetrated positions in various classes (for example a small cap fund which holds only 50 stocks or mid cap fund which owns only 30). These concentrated positions will add volatility, but also prevent overlap.
3) Running xray to make sure my real allocation is close to what I want based on fund selection.

If you use one fund company you get simplified statements and have numerous inexpensive choices for where to open account.

If you want funds from different families, you choices will be less (for where to open account), and fees will increase if the funds charge fees to other custodians.

If I own a diversified mid cap fund from T Rowe Price and a diverisifed small cap fund from T Rowe Price, each fund probably owns close to 200 stocks. Maybe 25 of those stocks are common between both funds. I can live with that.

If the funds only held 75 stocks and 25 of the stocks overlapped, that is a bigger issue, IMO.

**MYOM** · 10-12-2008, 02:07 PM

Jim, the percentage of money in each asset class has to do with the investors Investment Objective. The standard Investment Objectives are Aggressive Growth, Growth, Growth and Income, and Income with moderate growth. Age has much to do with one’s objective.

“Sixty percent of a portfolio’s performance at year-end can be attributed to the asset allocation or the amount of money invested within each asset class. Fund selection makes up 20% of performance, and another 20% comes from current economic conditions.”

Fund selection starts by screening for top performance among mutual funds. But, that is not good enough. You must know which mutual fund manager has assembled the better portfolio. Selecting a Mid Cap fund from just any manager is not good enough in my playbook.

I’m sorry Mr. Passio for putting a speed bump on the road to your perfect portfolio. I don’t normally want to participate in questions having to do with picking funds. I just want you to get it right by investing in a good financial education first. If the rest of you want to name funds for Mr. Passio, please do. I won’t say a word. If I can’t pay cash for a car I have not earned the right to have it. If I can’t construct an investment portfolio than I have not earned the right to invest any money. Here is my favorite line in the world of high finance. “You can never be wealthy knowing nothing about money.” I have heard professional traders refer to us as “a bunch of losers.” Without a good financial education, that statement is true.

Dan Clemons retired Certified Financial Planner

**mrpaseo** · 10-12-2008, 11:26 PM

Originally posted by MYOM View Post

If you are going to invest on your own you should have some idea of how to Manage Your Own Money. What do you know about Asset Allocation? What do you know about Portfolio Construction? Do you have a Buy Strategy? What will be your Exit Strategy? How will you know which mutual fund manager has assembled the better portfolio of stocks? How many funds do you need to own? How will you find a fund to replace a fund you own? How will you track all these funds? Do you have an investment plan in writing that answers all of these questions?

I see that you want to retire at age 50. What is your Path to Prosperity? What are you going to do to get there? How much money will you need to retire?

The best investment you can make right now is in a sound financial education. If I give you a fish I feed you for a day. If I can teach you how to catch fish on your own, you can feed yourself for a lifetime.

Dan Clemons retired Certified Financial Planner and Registered Investment Advisor

Sir,
Please note my answers to your questions in my first post. I fully agree that I should be learning rather than receiving a hand out of "What's the best place to put my money", my intenet is knowledge not a hand out.

You stated, "The best investment you can make right now is in a sound financial education. If I give you a fish I feed you for a day. If I can teach you how to catch fish on your own, you can feed yourself for a lifetime."

That said, I ask for your guidance and mentorship in my endeavor to learn.

Thank you for your concern enough to respond to my thread,
v/r,
Ray

**jIM_Ohio** · 10-13-2008, 03:48 AM

Originally posted by MYOM View Post

Jim, the percentage of money in each asset class has to do with the investors Investment Objective. The standard Investment Objectives are Aggressive Growth, Growth, Growth and Income, and Income with moderate growth. Age has much to do with one�s objective.

�Sixty percent of a portfolio�s performance at year-end can be attributed to the asset allocation or the amount of money invested within each asset class. Fund selection makes up 20% of performance, and another 20% comes from current economic conditions.�

Fund selection starts by screening for top performance among mutual funds. But, that is not good enough. You must know which mutual fund manager has assembled the better portfolio. Selecting a Mid Cap fund from just any manager is not good enough in my playbook.

I�m sorry Mr. Passio for putting a speed bump on the road to your perfect portfolio. I don�t normally want to participate in questions having to do with picking funds. I just want you to get it right by investing in a good financial education first. If the rest of you want to name funds for Mr. Passio, please do. I won�t say a word. If I can�t pay cash for a car I have not earned the right to have it. If I can�t construct an investment portfolio than I have not earned the right to invest any money. Here is my favorite line in the world of high finance. �You can never be wealthy knowing nothing about money.� I have heard professional traders refer to us as �a bunch of losers.� Without a good financial education, that statement is true.

Dan Clemons retired Certified Financial Planner

We used about the same data.

60% allocation+20% market performance is the same as 75% asset allocation to me.

The two variables an investor can control are the asset allocation they hold and the funds they use to fill that allocation. An individual has no control over the market (which impacts the performance of both the funds and the allocation).

If an investor chooses the allocation correctly, I would say that is 75-95% of the issue. Because funds chosen might us different techniques (no load or load through an advisor) and those technqiues will often see similar performances regardless.

I have an issue with this

Fund selection starts by screening for top performance among mutual funds. But, that is not good enough. You must know which mutual fund manager has assembled the better portfolio. Selecting a Mid Cap fund from just any manager is not good enough in my playbook.

and this

The standard Investment Objectives are Aggressive Growth, Growth, Growth and Income, and Income with moderate growth.

The second is determined by asset allocation, not fund selection. If a person wants aggressive growth, that philosophy should permeate the whole portfolio, not a single mutual fund selection.

If a person wants income with moderate growth that is a completely different allocation. That allocation will have different funds selected and/or hold the same funds but in a significantly different percentage.

I don't think screening for top funds is the way to choose a fund. I have never advocated that and would question anyone else which recomended using the top 1 or 3 year performers to choose their funds going forward.

My philosophy has been (and what I recomend to posters here):

1) identify your goals and express a function of time (short term less than 4 years, mid term less than 15 years and long term greater than 15 years).

2) Identify the priorities of the goals, and the risk tolerance you are willing to take to meet that goal.

3) Identify an asset allocation which meets the risk criteria above

4) Choose funds which meet the allocation.

**mrpaseo** · 10-13-2008, 04:01 AM

Originally posted by MYOM View Post

I’m sorry Mr. Passio for putting a speed bump on the road to your perfect portfolio. I don’t normally want to participate in questions having to do with picking funds. I just want you to get it right by investing in a good financial education first. (This is what this thread is all about... learning.)If the rest of you want to name funds for Mr. Passio, please do. I won’t say a word. If I can’t pay cash for a car I have not earned the right to have it. If I can’t construct an investment portfolio than I have not earned the right to invest any money. (I agree)Here is my favorite line in the world of high finance. “You can never be wealthy knowing nothing about money.” I have heard professional traders refer to us as “a bunch of losers.” Without a good financial education, that statement is true.

I believe you might have been confused with my initial post. I understand the frustrations of offering certain funds to others, I experience that almost daily. Many people know I enjoy learning about finances and I am always reading up so they constantly ask where they should put their money. I tell them I am the guy that can help them get out of debt, not the guy to help them invest their money. My fear is I direct someone into a fund and then it tanks. Most people don't understand long term, especially with the current market if anyone invests now they will most likely see their investment dwindle, this would cause some serious issues that I do not want to deal with.

I would like to be able to guide them in conducting their own research and making their own decisions. I however do not have a clue where to send them, so, I am trying to take the steps for myself, so I can get some experience. Then, once I fully understand I will be able to at least point someone in the right direction.

Thanks for your input,
Ray

**mrpaseo** · 10-14-2008, 09:21 PM

Anyone have the answer to my original question?

**Scanner** · 10-15-2008, 05:31 AM

Your original question:

I am trying to determine if I want Blend, Growth or Value. Can someone clear this up for me? What is the difference and how do they affect my decisions?

I am only going off of memory so check my "brain encylopedic" answer with your own research but I think:

1. Blend = mix of stocks and bonds
2. Growth = stocks where the co. tries to get share price to increase by improving it's balance sheet
3. Value = stocks where the share price is stable and a high dividend is the goal. The balance sheet should just be "balanced" because profits are distribued as dividends (classic example - utillity stocks)

I think it affects you decisions in 2 ways:

1. Your goals - accumulation or income?

2. Tax implications - I am not an accountant/tax advisor but I think dividends are taxed higher than capital gains. Please don't quote me on that. Anyway. . .you may want to pick different classes depending on the shelters you are using (Roth, 401(k), etc.) or not using.

**atomicrc11** · 10-15-2008, 05:36 AM

I do notice you wish to invest in many different funds, which is good as you will be diversified. Just keep in mind that each fund will have a minimum. At Fidelity most at $2500, but some funds are as high as a $10,000 minimum. Make sure you take that into account when investing.

**jIM_Ohio** · 10-15-2008, 11:38 AM

Originally posted by mrpaseo View Post

Anyone have the answer to my original question?

I think you are asking the wrong question.

Growth vs Blend vs Value is tough to define

Growth vs Value is easier to define
there are times when growth becomes value then migrates back to growth.

Stick with market caps (large-mid-small) because market cap does not change as much as growth-blend-value.

I think P/E ratio is primary measurement of growth vs value. value tends to pay higher dividends, but I don't think paying the dividend is the criteria to be value.

The reason xray spits this info out (I assume you asked this because of the xray you did on portfolio) is to let you know if funds you own are overweighted one way or the other.

If you have 75% large cap allocation, and the xray was

20 45 10

I know portfolio is overweighted to value. If I had two fund in the large cap allocation and I thought growth would rock the investing world next year, I would increase my contributions to that so maybe I have

18 40 17

I will run xray on my portfolio to give you an idea as to how I use it:

24 16 7
12 10 17
2 4 8

my target allocation is 45% large, 15% mid 15% small for US and 15% large and 10% small for international

This would imply 60% large cap total, and I add up to 47% total on xray.

This would imply 15% mid and I add up to 39% total on xray

This would imply 25% small and I add up to 14% on xray.

Summary (first column is me, 2nd column is wilshire 5000):

Large Cap Value 32.64 36.73
Large Cap Growth 15.16 35.29
Mid/Small Value 21.02 13.99
Mid/Small Growth 31.18 14.01

if large cap is 10k larger:
Large Cap Value 35.32 36.73
Large Cap Growth 15.50 35.29
Mid/Small Value 21.37 13.99
Mid/Small Growth 27.82 14.01

Makes sense because my 30% weighting to domestic mid and small are higher than the wilshire index and is what I want while growing my portfolio (mid and small cap overweight).

I know also know why the large is severely underweight on the xray summary. My Roth has not reached size where I could own my large cap at its proper percentage without incurring fees on my other holdings until about 15 months ago. The Roth large cap is the only fund I contribute to for 2009 and that will have this back in line (I added 5k to holding and xray upped the percentage or large caps to 50%, added 10k and percentage upped to 51%)

In addition there is a stock intersection which shows the holdings of which stocks I hold and which funds they came from, and how much of a percent my portfolio is in that one stock.

Examples
Murphy Oil Corporation MUR 0.84 685.82
1.48 T. Rowe Price Equity Income PRFDX 0.72583.80 06-30-08
1.18 T. Rowe Price Mid-Cap Growth RPMGX 0.0651.41 06-30-08
0.81 T. Rowe Price Diversified Mid Cap Grth PRDMX 0.0650.61 06-30-08

FLIR Systems, Inc. FLIR 0.24 193.61
1.36 T. Rowe Price Diversified Sm Cap Grth PRDSX 0.1191.42 06-30-08
1.82 T. Rowe Price Mid-Cap Growth RPMGX 0.1079.30 06-30-08
1.06 T. Rowe Price Small-Cap Value PRSVX0.0322.90 06-30-08

Quanta Services, Inc.PWR 0.17 136.25
1.16 T. Rowe Price Mid-Cap Growth RPMGX 0.0650.54 06-30-08
0.78 T. Rowe Price Diversified Mid Cap Grth PRDMX0.0648.73 06-30-08
0.55 T. Rowe Price Diversified Sm Cap Grth PRDSX0.0536.97 06-30-08

I can also see what countries I am invested in
U.S. & Canada76.75
Europe15.06
Japan3.61
Latin America0.48
Asia & Australia3.50
Other0.60
Not Classified0.00

The point is not to have a strict "35% value" guideline, the goal is to know if I am overweight in one thing relative to another based on holdings.

I choose the funds, the funds choose the investments. How would I have known my large cap value and my mid cap growth fund would both buy the same stock?

It's OK for a couple holdings to overlap, the goal is for this not to happen very often. The red numbers show the amount of portfolio invested in that one stock. less than 1% is OK in any case. if that 4% or higher, I would have an alarm go off.

**Broken Arrow** · 10-15-2008, 11:41 AM

Just so we're all on the same page....

Growth fund

Value fund

Blend fund

**rooskers** · 10-15-2008, 11:55 AM

Originally posted by mrpaseo

12.How much money will you need to retire?
$800,000

Wondering if you have taken inflation into account here. In order to have $800,000 in today's dollars you will need about 1.2 million by the time you are 50. With people living longer today and the cost of healthcare rising as with everything else living off of 1.2 million from 50 till you pass away is a very risky plan. Obviously I am not sure what you consider comfortable living but it wouldn't be enough for what I would consider comfortable. If you haven't considered inflation then $800,000 will be even more difficult to live off of for 30 plus years.

Retirement portfolio question