My biggest weakness with investing has been the struggle for achieving a "balanced portfolio".
How hard can that be?, I have always wondered. But after almost a year of active investing (I still think of my 401k-Roth IRA accounts and my taxable investing account as separate entities), I am not really completely diversified.
Part of the problem has been my investing cycle. Which hasn't been Dollar-Cost-Averaging. I have invested in chunks and so bought particular index funds and ETFs in those chunks. So in a way I am still working my way up to being balanced (a recent trade trigger that I had setup for an IIF when the price falls below $43 didn't help the process and now I am heavily loaded on the International side), but there is a long way to go. Add to that the fact that I haven't really rebalanced ever, things are not that simple with getting to a the end goal of having a very balanced portfolio.
So, my first goal in the near future as far as investing goes is to get there.
Step 1: Define the goal
What is the right balance? Using "type-of-equity" as a reference, I read recently that there is an old rule of thumb when distributing between stocks and bonds: the stock allocation percentage should be 100 minus current age.
Fair enough, and there is enough data to prove that in fact if you do track the popular mixed-funds from Vanguard, Fidelity and the likes, that formula holds up really well.
Next part of the goal is to allocate your stock assets also in a balanced manner. Currently here is how my allocation looks:
66% - International
20% - Mid Cap
14% - Large Cap Growth
There are a couple of free and useful tools that can help in figuring out the current allocation:
Morningstar Instant XRay page:
http://portfolio.morningstar.com/NewPort/Free/InstantXRayDEntry.aspx?dt=0.7055475
Also, a lot of professional and unprofessional advice on suggested portfolios can be found online.
Fund Advice Portfolios:
http://www.fundadvice.com/portfolio.html
Step 2: Identify the holes
After Step 1 is done and I have a clear idea of what is missing, I plan to dig into the details of which small cap (for example) ETF I should be buying. That seems to be the easy part and perfectly in tune with my investing theory as a lazy investor.
Step 3: Rebalance current positions
This might be a little tricky as with the small size of my portfolio, I avoid trades, but switching to Zecco (see previous post) can make this simpler.
Step 4: Sit back and relax
Never forget get the basic rule of investing.....be lazy!
How hard can that be?, I have always wondered. But after almost a year of active investing (I still think of my 401k-Roth IRA accounts and my taxable investing account as separate entities), I am not really completely diversified.
Part of the problem has been my investing cycle. Which hasn't been Dollar-Cost-Averaging. I have invested in chunks and so bought particular index funds and ETFs in those chunks. So in a way I am still working my way up to being balanced (a recent trade trigger that I had setup for an IIF when the price falls below $43 didn't help the process and now I am heavily loaded on the International side), but there is a long way to go. Add to that the fact that I haven't really rebalanced ever, things are not that simple with getting to a the end goal of having a very balanced portfolio.
So, my first goal in the near future as far as investing goes is to get there.
Step 1: Define the goal
What is the right balance? Using "type-of-equity" as a reference, I read recently that there is an old rule of thumb when distributing between stocks and bonds: the stock allocation percentage should be 100 minus current age.
Fair enough, and there is enough data to prove that in fact if you do track the popular mixed-funds from Vanguard, Fidelity and the likes, that formula holds up really well.
Next part of the goal is to allocate your stock assets also in a balanced manner. Currently here is how my allocation looks:
66% - International
20% - Mid Cap
14% - Large Cap Growth
There are a couple of free and useful tools that can help in figuring out the current allocation:
Morningstar Instant XRay page:
http://portfolio.morningstar.com/NewPort/Free/InstantXRayDEntry.aspx?dt=0.7055475
Also, a lot of professional and unprofessional advice on suggested portfolios can be found online.
Fund Advice Portfolios:
http://www.fundadvice.com/portfolio.html
Step 2: Identify the holes
After Step 1 is done and I have a clear idea of what is missing, I plan to dig into the details of which small cap (for example) ETF I should be buying. That seems to be the easy part and perfectly in tune with my investing theory as a lazy investor.
Step 3: Rebalance current positions
This might be a little tricky as with the small size of my portfolio, I avoid trades, but switching to Zecco (see previous post) can make this simpler.
Step 4: Sit back and relax
Never forget get the basic rule of investing.....be lazy!
