I prefer my portfolio to be self-directed.  Paying a financial planner 2% to 3% for something I can do just as well is a waste of money.  A 401k account has a limited number of funds in a plan but there are many more choices with an IRA at a bank or brokerage.  If I have an IRA account I will invest my money in a group of funds through E*Trade, Scottrade or TD Ameritrade following my own strategy defined in the next chapter.  At least with these discount brokers you do not have to pay an extra 2% to 3% investment broker/banker fee.  You will still pay the mutual fund fees which are interwoven within the funds themselves but you will not pay extra for the “expertise” of a financial planner.

Investment Strategy

Here is the summary of my investment strategy:

–         I try to maximize my contribution to my 401k account, which in 2016 is $18,000.  I am dollar-cost-averaging into the stock market with my periodic contributions from my monthly annuity payments. Tip: If you have an annuity you want to sell, reach out to Washington Accord.

–         I have my money in mutual funds not individual stocks. I have a moderately aggressive risk tolerance which means if I lost 10% to 60% of my money, I will not panic and withdraw the depreciated balance.  I will ride the tide and wait it out until the stock market recovers which it inevitably does.  I am more than 10 years away from retirement so my asset allocation, which I think is a balanced portfolio and diversified enough is 1/8 of my balance into each of these categories of mutual funds:  1) Large-Cap Growth, 2) Large-Cap Value, 3) Mid-Cap Growth, 4) Mid-Cap Value, 5) Small-Cap Growth, 6) Small-Cap Value, 7) Balanced and 8) Bonds (Government or AA and AAA only). I selected each category from the following family of funds: Vanguard, T. Rowe Price, Fidelity, Transamerica, John Hancock, Janus, Oppenheimer, Hartford, Invesco, Dreyfus, BlackRock, Janus, Franklin Templeton, Eaton Vance and American Century. The following website is a good place to start to find out the best long-term performers in some of the most popular mutual fund categories:

Example of Allocation

$500,000 Portfolio, $62,500 in each of these funds:

Large Growth

Vanguard PRIMECAP Fund Adm (VPMAX)

Large Value

American Funds Mutual Fund R6 (RMFGX)

Mid-Cap Growth

Janus Enterprise N (JDMNX)

Mid-Cap Value

American Century NT MdCap Val Instl (ACLMX)

Small Cap Growth

Janus Triton Fund D (JANIX)

Small Cap Value

Vanguard Small-Cap Value Index Fd (VISVX)

Balanced Fund

American Funds American Balanced Fund A (ABALX)

Bond Fund

Vanguard LT Govt Bond Index Inst (VLGIX)

Please keep in mind that the above allocation is only an example.  The funds shown above are not specifically recommended.  Moreover, the current funds’ performance may be drastically different from their performance on the date of publication of this book.  Do your due diligence before acting on any information obtained from this book.

–         I automatically rebalance my portfolio at the end of each quarter.


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Why You Should Also Keep a (Small) Sandbox

Investment Picture

Some investors may have cringed just a bit at the idea of an immutable lockbox. A lockbox clearly makes sense, but it’s a little boring. If you want investing to be fun and dream about the thrill of owning a 10-bagger stock (don’t worry if you don’t know what that means), by all means take a shot. But do so with only 5% to 15% of your savings in a “sandbox.” The sandbox is where you can have some responsible fun, make “bets” on individual stocks or sectors, and truly manage your own money.

In addition to being a bit more exciting than the “buy it and forget it” plan, the sandbox serves two extremely important functions:

  1. It is educational. A sandbox provides a reason to learn a lot more about investing. If you think that IBM might be a great buy right now, you are probably going to want to know how to value the company, whether it looks cheap or expensive on various metrics, how management is doing running the company, etc. Looking for answers to questions like these can be a hugely educational process that will make you into a more confident and informed investor better able to stick to a plan. You might find that you hate thinking about investing, and that is fine. Nothing is stopping you from investing your sandbox in ETFs or mutual funds, or closing it altogether. But you also might turn out to be one of those 2-3% of investors who are capable of consistently beating the market, and it would be a shame to let those talents go to waste.
  1. It provides a release valve for our impulse to trade more often than is healthy. As mentioned earlier, one of the reasons for a lockbox is that investors have a checkered history with the market. “Follow the herd” thinking has caused many to run headlong into technology stocks, commodities, housing, or even tulips (search for Dutch tulip mania), at the exact wrong time. But the lockbox is only going to be as strong as the will of the investor that created it. And there will come a time, no matter how strong the will, that every individual investor will see other people getting rich and want to jump into the fray, or will see his or her wealth disappearing and just want to sell everything. The sandbox lets you make a compromise with yourself-if you really think that “” is going to be the next Walmart, then by all means, put a little of your sandbox account into it, but don’t endanger your retirement by investing all of your assets in it.

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