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Re-Thinking investment strategy
Old 06-01-2006, 09:35 AM   #1
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Re-Thinking investment strategy

For a while now I've been investing solely in equities- mainly the C, S and I funds (stock indicies) available thru the TSP. Sort of a passive investment strategy.

I'm enrolled in an Investment Management class as one of the electives for my MBA. The instructor keeps handing us articles saying that the markets are oversold and predicting flat returns for years.

How can I get more diversification? What asset classes should I add? Is investing passivly in low cost indicies a good strategy for a 17-20 year time frame?

I realize this is a matter of opinion. I am thinking of add some TIPs bonds ETFs maybe. The TSP also has the G and F fund, which I've avoided so far.

My wife is letting me consolidate several of her accounts and I will probably open up something with fidelity, vanguard or USAA to roll her retirement accounts into.

Ideas welcomed. I also have to develop a personal investment plan, which accounts for 40% of my grade ;-)

Thanks!
Bill
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Re: Re-Thinking investment strategy
Old 06-01-2006, 09:39 AM   #2
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Re: Re-Thinking investment strategy

I think the addition of a modest amount of FI is probably a good idea. Smooths out returns and gives you something to sell and put into equities in a crash. In your shoes, I would probably add either a Lehman aggregate bond index or TIPS. I would also seriously consider buying some unheded foreign bonds, which tend to have low correlation with US equities and bonds. Maybe some commodities or RE, if you swing that way.
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Re: Re-Thinking investment strategy
Old 06-01-2006, 10:06 AM   #3
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Re: Re-Thinking investment strategy

Quote:
Originally Posted by Bimmerbill
I'm enrolled in an Investment Management class as one of the electives for my MBA. The instructor keeps handing us articles saying that the markets are oversold and predicting flat returns for years.
Oversold and flat returns for years? Hmmm... Doesn't compute. Maybe overbought and flat returns for years.

Oversold would suggest stocks are undervalued (better potential for upside movement long-term).

Unless these articles are predicting the Great Coming Worldwide Economic collapse. In which case returns would be negative.

To answer your question about whether low-cost passive index funds are the best choice for a 17-20 year investment, I would say you are correct. At least I'm basing my investment decisions on this assumption.
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Re: Re-Thinking investment strategy
Old 06-01-2006, 10:24 AM   #4
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Re: Re-Thinking investment strategy

I would suggest a little bit of the F (Leaman total bond)Fund and definitely some G Fund. Having the G fund means you don't need TIPS, IMHO. These reduce risk measurably. Then follow suggestions from Brewer about diversifing. I don't know where to find a reasonable way to aquire non hedged foreign bonds but if they don't correlate to S&P then that would be a good thing.
Its a little late to the commodities and real estate market but if you are talking 20 years you might plan how/when to include them.
You already have a good bit of diversification with the C (S&P500), S (small cap), I (total intl) and F(Leaman tot bond) and the G ( cash).
How much are you comfortable losing? Lost @$15K in the retirement funds last month, not pretty when my wife just retired and I am 18 months away. But I will be getting a COLAd pension so I hope to ride out market swings so my AA is almost all stocks.
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Re: Re-Thinking investment strategy
Old 06-01-2006, 10:25 AM   #5
 
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Re: Re-Thinking investment strategy

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I'm enrolled in an Investment Management class as one of the electives for my MBA. The instructor keeps handing us articles saying that the markets are oversold and predicting flat returns for years.
Your instructors name wouldn't start with an "H" and rhyme with Pocus - would it?
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Re: Re-Thinking investment strategy
Old 06-01-2006, 10:36 AM   #6
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Re: Re-Thinking investment strategy

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I don't know where to find a reasonable way to aquire non hedged foreign bonds
I use GIM, an exchange-traded fund for this asset class. Wait to buy at a ~5% discount to NAV. I haven't found an index option.
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Re: Re-Thinking investment strategy
Old 06-01-2006, 10:41 AM   #7
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Re: Re-Thinking investment strategy

Sooo

The Gordon equation - or perhaps Bogle's version of it.

Buffett uses a slightly different methodology - but comes to similar conclusions.

Note that with the rundown from 2000 - 2003, flat isn't necessarily flat anymore. Last pontifications I read were in the 4-8% range inflation included.

Not great expected growth - but not the end of the world for a retired old phart like myself.

Also - a great excuse to exercise male hormones chasing Monty Python's holy grail (the one great stock) since the Superdome won't be fixed by season start and the Saint's probably won't surprise anyone this season either. Can't go the Chief's - yet.

Hope springs eternal!

heh heh heh

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Re: Re-Thinking investment strategy
Old 06-02-2006, 07:52 AM   #8
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Re: Re-Thinking investment strategy

Thanks for the input. This weekend I'll look at my wifes portfolio and come up with a plan to roll her accounts over to something which will diversify our total portfolio.

I'm not quite certain how they figure out the G fund returns. As interest rates rise, what will happen to the G fund rates?
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Re: Re-Thinking investment strategy
Old 06-02-2006, 09:04 AM   #9
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Re: Re-Thinking investment strategy

Quote:
Originally Posted by Bimmerbill
Thanks for the input. This weekend I'll look at my wifes portfolio and come up with a plan to roll her accounts over to something which will diversify our total portfolio.

I'm not quite certain how they figure out the G fund returns. As interest rates rise, what will happen to the G fund rates?
Hi Bill,

Here is a conversation from M* that tries to decipher the G fund return. As interest rates on Treasuries rise, the G fund rate will rise.

- Alec

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Re: Re-Thinking investment strategy
Old 06-06-2006, 02:05 PM   #10
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Re: Re-Thinking investment strategy

Thanks for the great ideas. I may add some G fund to my account, since its pulling a steady 5%, no risk.

Anyone have any input as to USAA, Fidelity or Vanguard to consolidate all of my wife's accounts into? I have savings, car/house insurance thru USAA.

Just how do I evaluate their fee and expense structure vs Fidelity and Vanguard?
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Re: Re-Thinking investment strategy
Old 06-07-2006, 12:43 PM   #11
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Re: Re-Thinking investment strategy

Quote:
Originally Posted by Bimmerbill
Thanks for the great ideas.* *I may add some G fund to my account, since its pulling a steady 5%, no risk.*

Anyone have any input as to USAA, Fidelity or Vanguard to consolidate all of my wife's accounts into?* I have savings, car/house insurance thru USAA.*

Just how do I evaluate their fee and expense structure vs Fidelity and Vanguard?
Hi Bill,

If you're going to buy the mutual funds directly from the fund company, I'd go w/ Vanguard b/c their expense ratios are lower than Fidelity's in most cases, and Vanguard's funds have much more stable management. In some cases, the brokerage accounts at fidelity may be cheaper [for buying bonds at auction, etc.].

- Alec
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