Sunday, March 21, 2010

Selling Your Investments Means You Get to Buy New Ones

This is the third post in a series about Selling Your Investments.
In the first post I chronicled how I overcame my fear of selling a long term asset.
In the second post I explained why I chose to sell this asset at a loss.
In this third post I hope to explain what I am going to buy with all of that cash!

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize RiskI opened my Roth IRA with Fidelity partly because of their recent offering of 25 iShares ETF's which trade commission free. Naturally, I looked at these options first to see if they would complement my current target asset allocation strategy. I also compared the options to the funds that are available to me in my workplace 401(k). Surprisingly, my workplace 401(k) is really not as horrible as some people have. In fact, after reviewing my current plan I determined that only a minor adjustment in my 401(k) contributions is needed to keep me on track. The analysis of my 401(k) contributions quickly narrowed down the field of choices for where I wanted my money to go in my Roth account. My 401(k) has great S&P 500, US Total, Bond, and Foreign Large funds. This leaves US Small Caps and Emerging Markets and REITs as the only areas I need to focus on with my Roth in order to reach my target asset allocation. 

Below is a chart of my target allocation. How did I come up with such a complicated piece of pie? I explored several different options. I chose an allocation strategy that was heavier in stocks than bonds which reflects both my time frame and my risk level.

Compare that to my current asset allocation - and the choice became very clear where all my cash should go: Emerging Markets. And, Fidelity now offers me a great vehicle to do that in: EEM. The biggest question I have is whether I should just do a lump sum investment, or dollar cost average over the course of this year?


This pie chart is due to change dramatically this year as I continue exploring the iShares offerings and developing a strategy to exit some of my other high expense ratio mutual funds. Some of my mutual funds have an expense ratio of 1.5%. Ouch! When compared to some of the iShares ETF's that have expense ratios of only 0.20% the new path forward becomes a bit clearer.

I'll try and provide new updates as the pie charts makes big changes this year.

You may also be interested in reading:
You Can Lose Money Selling Your Investments
Selling Your Investments Means You Get to Buy New Ones
ETF's and Lazy Portfolios
Dollar Cost Averaging: An In Depth Investigation Using EEM
Alternatives to My Investing Decisions

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