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Old 06-17-2012, 09:49 AM   #21
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What was the question again? "Am I diversifying correctly?"

The answer to that question is "No, you are not diversifying correctly." There is no reason to have a sector fund such as that Health Science fund.

Without regard to the funds you now own, what is your desired asset allocation and how did you come up with that desired asset allocation?
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diversifying
Old 06-17-2012, 11:36 AM   #22
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diversifying

Prior to reading the books recommended here, I was also advised to call Fidelity as they have "trained professionals" who will be able to assist me. I was then advised to take the 401k from a former employer and put those funds into the Freedom Fund 2020 and the other two funds with the exception of the PIMCO fund.

After reading several books on investing, given the current insane market, my age (57) I learned to put the funds into the PIMPCO.

As result of the above and reading the books I then posted my question here. The rest is history and I am still confused.

Last year I spoke to a financial adviser which one of my worst mistakes! When I told him of my concerns with the market and my losses with the funds I had in American Funds he advised me to put roll over the funds into the Modern Woodmen Annuity.

So you can see I was so excited when I found this forum and look for sincere, honest and true knowledgeable advice.

As of right now, and even after reading the books, I AM STILL CONFUSED.

I am so please when you posted your comment because that helps me to understand I need to make some some drastic needed changes, but where and what? Grrr!
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Old 06-17-2012, 12:05 PM   #23
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From an earlier post...
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Originally Posted by Midpack View Post
Rose,

Why for did you choose Freedom 2020 for your IRA and then choose something else for your 401k when you could have just chosen Freedom 2020 there too? There may be a reason, but it's not obvious! Is there a tilt you're going for?

PHLAX is a sector fund and therefore an unusual choice for a newer investor, sector funds are never recommended in lazy portfolios that I've seen. What's the thought there?
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Old 06-17-2012, 12:11 PM   #24
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..., but where and what? Grrr!
Frankly, after your response to Nords, I'm afraid to offer any more advice.
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Old 06-17-2012, 01:33 PM   #25
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There is a lot of confusion because there is no one answer. Not even among the posters on this board.

My best advice for beginners is to select one of these options:

1) Put everything into the Freedom 2020 (or adjust the date if you like, mostly earlier date to be very conservative or later dates to be more aggressive). Very simple. You're invested and diversified and don't have to do anything more.

2) Try creating a "lazy portfolio". You should get a bunch of suggestions if you google that. These are simple 2-6 fund portfolios, usually of index funds. Typically they would include something like a U.S. stock index fund, an international stock index fund, and a U.S. bond index fund. You can't go too wrong selecting low cost index funds from anywhere. Or select the closest matching funds you can find in your 401k, like the Fidelity S&P 500 index fund. This approach allows you a little more control over your diversification and fund costs (the expense ratio is what you want to look at and minimize).

These portfolios may expect you to rebalance once a year by selling funds that have done well over the past year and buying funds that have done poorly over the past year. That just keeps each fund at the same percentage of your total portfolio as it started out. That percentage is your target asset allocation, or AA. If you don't rebalance, for example, stocks could grow faster than bonds and sort of take over your portfolio. You have to trim them back to stay with your target AA.

Staying with index funds ensures you achieve nominal market gains at minimum costs and effort. You don't need to spend a lot of time researching the best fund manager and past performance and deciding if the extra expenses are worth it.

3) Similar to (2), you can expand the number of funds you use by subdividing into smaller categories. This is the "slice and dice" approach. So instead of using just one fund for all U.S. stocks, you could use one for large company "growth" stocks, one for large company "value" stocks, one for small company "growth" stocks and one for small company "value" stocks. That allows you to adjust the weighting of each of these types of stocks within your portfolio and provides additional opportunities to rebalance, which can improve performance. This is what I do. I wouldn't recommend it for you until you have tried (2) for a while.

So you sort of have a "lazy portfolio", but with some strange choices in a healthcare fund and mid-cap fund. Nothing you need to correct right now, but consider why you are in these funds, do you want to stay in these funds at their current percentage of your portfolio, and will you rebalance to keep these funds at their current percentage of your portfolio.

Be sure to include all of your investments in your total portfolio, regardless of account location. For example you could use the Fidelity S&P 500 index and PIMCO funds in your 401k and add an international index fund like FSIIX in the rollover IRA. I'm not sure how I'd include the Woodmen thing. Maybe as sort of a bond. Or just leave it out of your calculations for now.
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Old 06-17-2012, 01:36 PM   #26
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You may still be confused. There is no magic answer. History does not and will not repeat itself when it comes to financial markets and returns. I have moved stuff here and rebalanced there, I have had enough of guessing. I am plugging in a 3% return before taxes. I will save until I can pull out a set amount a month for 40 years with nothing left after that time , unless I make over 3% . That will make me 90 years old. It works for me. As for financial gurus, Been through many, they think I am nuts, Kind of like that.
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Old 06-17-2012, 03:04 PM   #27
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Originally Posted by LOL! View Post
What was the question again? "Am I diversifying correctly?"

The answer to that question is "No, you are not diversifying correctly." There is no reason to have a sector fund such as that Health Science fund.

Without regard to the funds you now own, what is your desired asset allocation and how did you come up with that desired asset allocation?
Actually according to the M* Xray report she is well diversified. A sector fund isn't normally part of portfolio with so few funds, but the impact is pretty small. A 32% allocation to health care vs 12% of the overall market. It is 30%*25% of her portfolio = 7.5%. Plenty of us have a couple of stocks that add up to more than 10% of our portfolios.

My suggestion was to add the S&P 500, but I'm hard press to be too critical of 5 star fund, with 1,3,5, 10 year of performance 18.8%, 23.5%, 9.0%, and 14.5% and standard deviation of roughly the same as the S&P. PHLAX was ranked in the top 2% in its category over 10 years.
I am assuming that since it is in a 401k there is no load and if there is load I'd suggest Rose stop contributing new funds to it.
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Old 06-17-2012, 03:15 PM   #28
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Rose,

I am in a similar situation as you. I don't understand a lot of the stuff people are posting in this thread. I think I understand a lot of it conceptually, but putting it into action is another story.

Most people see the total portfolio as one big pie chart with all investment accounts combined, and decide on how they want to break up the pie into pieces (funds) depending upon what they are aiming for (agressive, conservative, tax deferred, etc). This, to me, is too difficult and confusing to do, because I have an old 401K's I cannot add any money to. I also have a current 401K I am putting a lot of money into every 2 weeks while Roth IRA (tax free) gets fed only once a year by a fraction of the amount of money that goes into my current 401K. You also have multiple retirement accounts like myself. And I believe that is why people are asking for more information so they can figure out the whole pie.

Besides that it is very confusing and difficult for me to try to figure out what funds to get to make one big pie chart (some accounts have few funds to choose from), if I made one pie chart with all my retirement accounts, and split it into different funds, some funds will get new money while some never will, and you did mention something similar in your post.

So what I decided to do was to look at each retirement account as a separate pie chart, and use similar asset allocation breakdown for each retirement account. If one asset allocation pie chart with all accounts combined is like one universe, mine is like having multiple universes, but each universe has same or similar asset allocations (depending upon what funds are available) as the other universes.

To determine asset allocations, I am using my version of Lazy Portfolio by combining some of the stuff I read in books and this link
Lazy Portfolios - Bogleheads

My current 401K moved to another brokerage firm with limited selections recently;, so I am going over the funds to figure out how I can match my current 401K to the asset allocations I want.

Overall, Anmorph post is very close to what I am doing. (2 and 3) except he is not mentioning to create multiple universes like I am doing.

I think his approach and my approach would make things easier to handle.
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Old 06-17-2012, 04:57 PM   #29
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In general, most advisers will want to make this sound complicated. The more dependent you are on their advice, the easier it is for them to sell you something. In reality, you just need a balanced portfolio with relatively low costs. Freedom 2020 (or whatever date you choose) will do that for you. Putting 100% in that one fund is sufficient. If you want to try to drive to lower costs by buying individual equity and bond funds (indexes recommended) you could consider that. It's a small step past the simplest one fund "portfolio" and may or may not outperform it. Beyond that, you could consider adding a sector (like you did with healthcare) but frankly you are moving beyond investing at that point and are attempting to predict which sectors will be net winners, which is borderline speculation.

If I were in your place, I would suggest 100% Freedom 2020. Set it and forget it. Stay the course. Avoid clever advisers and you deny them the opportunity to sell you something that benefits them.

I think Nords was genuinely trying to be helpful, and had no intention of pushing the buttons that apparently you are sensitive to. You would be well advised to mend that fence.
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Old 06-17-2012, 05:25 PM   #30
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I am concerned that our new member, Rose, constantly accuses herself of being dumb and helpless (see quotes from Rose's posts, below).


Not the sharpest pencil here
I'm sorry for being such an ignoramus
I'm just not smart enough
since it's just little old me,
I did make one VERY big stupid mistake
you can send me a cyber slap here.


Realize that these quotes are taken out of context, yet even within the context of her posts, Rose is putting herself down. To invite a "cyber slap" is to be ready to see a "slap" where a slap was never intended. That, one suspects, is not the best frame of mind for learning new things. Suggest that Rose get in the habit of treating herself with greater respect; this may help her be in a better frame of mind to accept the well-intended and well-expressed advice she has received.


Just my gently intentioned $.02.



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Old 06-17-2012, 06:06 PM   #31
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...........

If I were in your place, I would suggest 100% Freedom 2020. Set it and forget it. Stay the course. Avoid clever advisers and you deny them the opportunity to sell you something that benefits them.

I think Nords was genuinely trying to be helpful, and had no intention of pushing the buttons that apparently you are sensitive to. You would be well advised to mend that fence.

+1
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