I’m a Canadian, definitely not a European

I have all my money in stocks currently (feeling risky since I’m younger). 4 stocks : EWC, SPY, EWJ, C. I’ve made money on all the stocks except for Citigroup (C). I bought EWJ (Japan index) 2 days after the earthquake/tsunami when it was at an all time low and have done well with that so far. Overall, I enjoy playing the market and planning for retirement!

But you can do some market timing by rebalancing. For example, if you’re going for a 90/10 stock/bond ratio, when your stocks go over 90%, buy bonds next time, and when your bonds go over 10%, buy stocks next time.

I don’t really “sell” anything I hold. I just put money in my IRA each month, buying more of my index fund. The whole dollar-cost-averaging thing.

However, are you saying I should buy bond funds when the stock market is high, and then sell those to buy stocks when the market is low? Isn’t that getting into market timing?

I make a point of investing in energy and health care stocks. I feel like my fellow Americans will pay anythings for these ‘rights’ so I might as well make money off of it. Terrible, right? I also mix in some various cap stocks and international.

Also, my cardinal rule is to never invest in more than 5 ‘funds’. This is true for my 401(k) or my roth IRA. Its a serious error to overdiversify.

No, I’m not a sixty-year-old. But sometimes I act like one.

See, that’s the problem. I’m a crazy mix of aggressive and conservative. There’s no in-between. I think it’s in part two of this series that I talk about how I’ve mentally divided my money into two buckets — the “safe” bucket and the “grow” bucket.

For the record, though, since writing this post, my reading has, indeed, led me to believe that I don’t need more in bonds. So, I won’t be adding anything there. But I’m not taking anything out, either. I’m going to let the stock/bond re-balance happen organically as stocks grow. This feels like a good compromise for me.

In our Roths I invest strictly in individual dividend stocks according to certain criteria.

Re-balancing happens in the 401(k) annually based on the total value of all investments (Roth included).

Looking forward to hearing more about the re-balancing process and fund evaluation JD. It seems like a lot of your current funds overlap.

I’m going to a free session w/ a financial planner at the library tonight to refine my asset allocation, so not like I have all the answers either.

As to your first question, lets say you invest $100,000 in two funds, one with an expense ratio of 0.5% (which is high for a passive fund, there are ones as low as 0.07%) and one with an expense ratio of 2%. After 30 years at a 7% annual return, the first fund is worth ~660,000 and the second is worth ~430,000. Fund A is 50% higher than fund B, or said another way, you have lost more than twice your original investment to excess fund fees.

As I learn more, I keep adjusting what my ideal portfolio is. All my gains are automatically reinvested. I rebalance by calculating how many shares I would have in each fund if I had the ideal percentages. I sell the appropriate amount from the funds that have more and buy the appropriate amounts of the funds that have less.

Sadly, I don’t currently have any Canadian stocks. I have US, European, Pacific, and developing. Instead of “European,” I wish they had non-US Western. Or since Canada (and Australia, etc.) are associated with Great Britain, why can’t they be included in European funds?

I’d rather divide things by industry than by country/size, but the industry funds tend to have higher fees, so I don’t. I think the most important determinants of how much money you have are: 1) how much you invest (duh), 2) what percentages you choose and 3) how high your fees are (or maybe 2&3 are reversed).

My investment policy statement favours relatively high risk areas (with consistent fund managers); equities over bonds (I’m only 28) and growth as a primary concern.

Just now I’m aiming for roughly:

25% UK equity (tracker)
25% EU equity (managed fund, quite volatile)
25% US equity (mid caps, also quite volatile)
10% Emerging Markets (managed fund, trying to reduce my exposure)
10% High yield bonds (this pays some of my adult allowance!)
5% I forget

I’ll be rebalancing with new contributions, as switching fees would eat into the performance of my investments and I already use a good few managed funds. Luckily enough my provider (also Fidelity, although in the UK) makes the process of changing my monthly contributions up or down relatively easy.

Looking forward to year 2!

Also, I have a question: I’m 25 years old. Is there any reason why I should not be 100% invested in stocks? Retirement is probably 40 years away, so I feel like I have time to recover from anything. Why should I invest in any bonds at all?

You calculate growth by adding up all your contributions and comparing that number to your current balance. For example, if you’ve put in $250 a month for the past 4 years, your contributions are $12,000. If your balance is $15,000, you’ve gained $3,000 in returns.

That allocation calls for 25% in each of four funds: 500 index, small-cap, international, and bonds.

I don’t really line up with that yet, though:
As of January 2011 I had:
24% broad-market
24% 500 index
17% small cap
18% international
6% mid cap
10% bonds

I think 25% bonds is too high for someone my age, so was shooting for 10-15% in bonds. I’ve never been able to figure out when a mid-cap index fund is a good idea – it’s not on any of the portfolio suggestions you listed! I don’t know why I have it!

Anyway, I try to revisit my allocation sometimes (I did it for the first time in April 2010, then revisited in Jan 2011). Instead of selling, I just redirect my ongoing investments. I bought a REIT with a rollover; I should look to see how my balance is looking now!

This is all retirement saving, btw – I have an e-fund in a very boring money market account and have no other non-retirement savings right now.

Oh, and I have to confess.. I don’t really know how to calculate the growth in my funds – how do you separate your contributions from your earnings? I know it’s a basic concept but so far it eludes me.

It sounded too good to be true to me, so I spent a few months reading about it, and then tried it out with a little bit of my own money. I’ve stuck with it ever since. Have yet to rebalance, but know exactly what percentages the various assets need to hit before I do so.

One of the intents of the portfolio is to have you ignore the financial news and get on with your life, but to be honest … we live in interesting times, and it’s been helpful to see how my portfolio handles dramatic changes in the stock market and the economy at large (masterfully, IMHO).

The PP doesn’t quite have an investment policy statement, but it certainly lays the foundation to make one.