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How's my portfolio setup? Opinions?

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Money Talk > Investing, Stocks and Bonds

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jmilber
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How's my portfolio setup? Opinions?  Reply with quote  

Hello,

I am 30/M--- owner of an insurnace business & tax preparation service. I'd say my risk tolerance is middle-high, since I'm young, have a good income ($200-250K/year), and am a bit of a gambler! I don't have any financial advisers help, but I know a fair amount about investments so kind of just set my portfolio myself.

Here's my portfolio, in a nutshell. Some questions below regarding if I am well placed and any suggested plans:

Checking Account: $60,000 (Working capital + deciding where to put some, or all of this)
(no risk)

Gold Bars & Coins: $26,400 (medium risk?)

American Funds - International Income/Growth Mutual Fund (capital world income & growth) - $70,000 in personal account
$12,000 in 401K account (just started it)
Medium-High Risk

American Funds - CA Municipal Bond Fund - $12,000 (Medium-Low Risk)

Scotade - $8000 in a high risk cell phone accessory company - ZAGG
- $15,000 in a super high risk 3X BULL ETF - derivatives related to health care. (CURE)

TOTAL ASSETS: $203,400
Risk Distribution (If my assessment is correct)
No Risk: $60,000 Med-Low: $12,000 Med: $26,400 Med-High: $82,000 High: $8000 S-HIgh: $15000

1.) Does my portfolio seem to be well diversified?
2.) Given the current market conditions, am I well placed? Is the market too top heavy? I'm considering on waiting for the Greece crash to re-balance at a 18K DJIA then swap out my S.High risk Bull 3X for some more bond funds.
3.) Is there somewhere safe I can park 30K of my checking account in right now? What about a municipal bond ETF fund? I hjave high tax rates so municipal is pretty nice for me.

Any advice or analysis on what you'd suggest to do with the current funds, or what to do with my idle checking account funds would be appreciated.. as well as suggestions for new money coming in. I keep waiting for the market to crash so i can invest more--- if I'm betting on a crash, maybe I should get out of so much risk right now and keep the money somewhere safer while I wait? So much to consider, driving me mad =P

thaks for your help
Post Thu Jul 02, 2015 3:11 am
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oldguy
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quote:
Does my portfolio seem to be well diversified?
2.) Given the current market conditions, am I well placed? Is the market too top heavy? I'm considering on waiting for the Greece crash to re-balance at a 18K DJIA then swap out my S.High risk Bull 3X for some more bond funds.
3.) Is there somewhere safe I can park 30K of my checking account in right now? What about a municipal bond ETF fund? I hjave high tax rates so municipal is pretty nice for me.


If you split your funds into income vs equity, you are mostly in 'income' - ie, bonds, cash, gold, int'l income, etc. Only about $40k or $50k in equities. At your age, I'd do 100% in equities.

I do a top-down mix, I keep my 'safe" and my 'growth" pure. Eg, when I want to add risk, I don't do it by adding junk bonds, I do it by changing my top-down mix, say from 50/50 to 60/40. I did 100% equities for my working life, transitioned gradually to 50/50 after retirement. IMO, humans have about 30 yrs for wealth-building, followed by many years (hopefully) of wealth-preservation. But you are way more than 50% into wealth-preservation already at age 30.

As for the Greek mess - or the prognosticators warnings that the market is top-heavy - don't look at it. The Dow was about 1000 in 1980, it's now 18,000 (not counting the Div). When you're 60, the Dow should be in the 250,000 range, it prolly won't matter much if you bought some at 16,000 or at 20,000 if you, just keep accumulating, never selling - in bad times you'll be buying more shares.
I owned some rental houses over the years - whenever I "wanted for the market to come back down" I ended up buying similar houses for MORE than I would have a few yrs later.

Here's a statement that I've heard from people over the years - "I'm waiting for the market to recover so that I can get back in". Kinda like "buy high"? lol

This site gives the history of the generic US market - SP500. For 30-year blocks the return averages 11%/yr. The most recent 30 yrs, ending in April was 11.03%/yr. Eg, $10k/yr invested @ 11%/yr = $2,200,000. That's about 'medium' risk - and you're diversified across the capitalization of entire US and a good portion of the int'l commerce.

http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.VZV5ZUbmeUl

Long ago, I did most of the things that you did - bought individual stocks, penny stocks, wrote call options, bought naked options, traded corn futures. After I QUIT that stuff and started investing, I became wealthy. Mad

BTW, if your $15k of super-risk stock hit a home run and doubled, it's a 7% return to your $200k portfolio. And that's the problem with junk, you dare not buy much cuz of the risk - and even if it does well it's of little value anyway.

Law of Investing - risk & return are directly proportional - if you stay safe, inflation slowly erodes your purchasing power. If you buy high risk, you are likely to lose your principal and be force to start over a few times in your life. So that kinda pushes you to medium risk - enough risk to easily outpace inflation, but not enough risk to be a 'gamble'. In my world, that turned out to be about an 11%/yr risk level.
Post Thu Jul 02, 2015 6:08 pm
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jmilber
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Oldguy,

Thank you very much for the insightful and thorough reply. Just the kind of advice I am looking for, and I appreciate the advice.

When the Dow reached 16,500, I had convinced myself a crash was coming and moved tons of investments from equity into bonds, gold, etc. Soon after, gold went down-- and my bonds made measily pennies as my equity soared ahead. It made me feel silly, but I told himself I'd appreciate my decision when the market plumeted in months to come.... it never did.

Do you think dollar cost averaging is the way to go?

Do you think it better to get a good mutual fund rather than try to buy a portfolio of individual stocks? Any suggested funds?

The fund I am in has good returns, when dividends are reinvested, but perhaps I should get into a fund with lower dividends seeing how I am in a high tax bracket and have to pay tax everywhere on the dividend growth.

Any suggested funds for good growth?

Appreciate your advice!


quote:
Originally posted by oldguy
quote:
Does my portfolio seem to be well diversified?
2.) Given the current market conditions, am I well placed? Is the market too top heavy? I'm considering on waiting for the Greece crash to re-balance at a 18K DJIA then swap out my S.High risk Bull 3X for some more bond funds.
3.) Is there somewhere safe I can park 30K of my checking account in right now? What about a municipal bond ETF fund? I hjave high tax rates so municipal is pretty nice for me.


If you split your funds into income vs equity, you are mostly in 'income' - ie, bonds, cash, gold, int'l income, etc. Only about $40k or $50k in equities. At your age, I'd do 100% in equities.

I do a top-down mix, I keep my 'safe" and my 'growth" pure. Eg, when I want to add risk, I don't do it by adding junk bonds, I do it by changing my top-down mix, say from 50/50 to 60/40. I did 100% equities for my working life, transitioned gradually to 50/50 after retirement. IMO, humans have about 30 yrs for wealth-building, followed by many years (hopefully) of wealth-preservation. But you are way more than 50% into wealth-preservation already at age 30.

As for the Greek mess - or the prognosticators warnings that the market is top-heavy - don't look at it. The Dow was about 1000 in 1980, it's now 18,000 (not counting the Div). When you're 60, the Dow should be in the 250,000 range, it prolly won't matter much if you bought some at 16,000 or at 20,000 if you, just keep accumulating, never selling - in bad times you'll be buying more shares.
I owned some rental houses over the years - whenever I "wanted for the market to come back down" I ended up buying similar houses for MORE than I would have a few yrs later.

Here's a statement that I've heard from people over the years - "I'm waiting for the market to recover so that I can get back in". Kinda like "buy high"? lol

This site gives the history of the generic US market - SP500. For 30-year blocks the return averages 11%/yr. The most recent 30 yrs, ending in April was 11.03%/yr. Eg, $10k/yr invested @ 11%/yr = $2,200,000. That's about 'medium' risk - and you're diversified across the capitalization of entire US and a good portion of the int'l commerce.

http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.VZV5ZUbmeUl

Long ago, I did most of the things that you did - bought individual stocks, penny stocks, wrote call options, bought naked options, traded corn futures. After I QUIT that stuff and started investing, I became wealthy. Mad

BTW, if your $15k of super-risk stock hit a home run and doubled, it's a 7% return to your $200k portfolio. And that's the problem with junk, you dare not buy much cuz of the risk - and even if it does well it's of little value anyway.

Law of Investing - risk & return are directly proportional - if you stay safe, inflation slowly erodes your purchasing power. If you buy high risk, you are likely to lose your principal and be force to start over a few times in your life. So that kinda pushes you to medium risk - enough risk to easily outpace inflation, but not enough risk to be a 'gamble'. In my world, that turned out to be about an 11%/yr risk level.
Post Thu Jul 02, 2015 8:53 pm
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oldguy
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quote:
!. Do you think dollar cost averaging is the way to go?

2. Do you think it better to get a good mutual fund rather than try to buy a portfolio of individual stocks? Any suggested funds?

3. The fund I am in has good returns, when dividends are reinvested, but perhaps I should get into a fund with lower dividends seeing how I am in a high tax bracket and have to pay tax everywhere on the dividend growth.


1. Yes - but not necessarily cuz of the averaging - I think of it as incrementally accumulating, never selling. Ie, the opposite dof trading, the opposite of 'timing'. You mentioned that the result of 'timing' made you feel silly - for me, the realization that timing could not be done was liberating, it freed me to simply invest w/o timing.

Think about 'timing' - the Lib of Congress likely has a 1000 books on the thesis of 'timing', beat the market, Elliot Waves, Fibonacci Ratio, up & saucer, yada. But if it could actually happen, why would we need more than a single book? Look at results - professional fund managers match/beat the market only 15% of the time. And that makes sense, they need to reliably earn 14% to net 11%/yr (the unmanaged SP500). And they also must select from that population of 11%/yr stocks - ie, it's damn hard to earn 14% from a population that averages 11%.

2. Those are largely the same thing - if you pick 20 or more SP500 stocks you will get almost the same results that a fund manager will get. Both methods have the problem of 'lag' - ie, you must watch a loser stock for a few months to confirm that it is failing - so you are 'out-of-the-market ' with that money for a few months, then you pick a replacement stock - and pay the OH sell/buy. My conclusion was 'why do any of that'? - timing cannot be done, and pro managers can't out-perform, why not simply buy the unmanaged US market, ie the SP500 Index Fund, and take the 11%/yr. BTW, that grows tax-deferred, the only tax is on the annual div.

3. IMO, buy the SP500 Index from a no-load company - let it grow tax deferred in your taxable account. And load your SEP or Ind IRA up to the $53,000/yr. In any case, no matter which account-types you choose, the key is to let the power of compounding work unencumbered for about 30 years, it's bigger than most folks think. As I said earlier, $10k/yr = $2.2M in 30 yrs - with your earning power, prolly way more, say $25k/yr, that's over $5.5M.
Post Thu Jul 02, 2015 9:48 pm
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Wino
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Buying Roth or traditional IRAs or company 401Ks and all their brethren, or even buying taxable funds when you have cash is actually dollar-cost-averaging. You are buying incrementally and accumulating, as oldguy said.

The only time DCA is even a question is when you get a large lump sum that you have to decide what to do with it. This is pretty much limited to selling a profitable business, winning the lottery, or getting an inheritance. Only on those occasions and maybe one or two more is there even a question about DCA or not. Every paycheck investing, or even once-per-year investing is DCA, if you think about it.

I have some dividend stocks, and even though I have to pay taxes on those earnings, I still reinvest the money, as I do all of my equity gains. My next diversificaiton will be in more real estate. I have realized that the way to make money in real estate is on the purchase and sale, with any rent covering the bulk of the payments the gravy. Therefore, real estate just becomes another "buy and hold" equity, in my accounting.

The only investment the OP has that I totally disagree with is the gold and siver. Those are not performing assets. They are speculation and nothing more. The uses for either of those are few and far between, so their only value is in trading. Stocks can rise and double in a year based on some new market gimmick or invention - iTunes and Apple comes to mind. Gold? If it doubles, it's because people are panicking, nothing more.

Look for investments that have growth potential. Stocks can have X:1 splits. If you buy 100 gm of gold, you have 100 gm of gold in ten years, still. If you buy a house, the rent can pay your payments gaining you equity, while the value increases. Gold? You still have 100 gms. If you buy a bond, it will produce income at its face rate, increasing slowly, but steadily. Gold? Still 100 gms.

And that 100 grams is going to be worth whatever someone else is willing to pay for it. Each and every time, the value of the gold is only based on someone else's desire to possess it. Real estate, bonds, and stocks are valuable in the usefulness (rent, investment/growth capital and interest income, and profit, respectively). Gold? Nothing but someone else's opinion determines its value when you sell it.
Post Fri Jul 03, 2015 2:41 am
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