Buy? Sell? Hold? Choke? Puke?

Let’s talk over some ideas about actual things to stick in your portfolio. If you’ve read the blog from the beginning, you understand my few fundamental premises.
No one, nowhere, no how, can predict security prices, the “best” mutual funds or the “hottest” money managers. They can tell you which ones DID the best, not which ones WILL DO the best. That's like paying an historian to tell you the North won the Civil War.
Therefore, paying someone to select stocks for you is a complete waste of money. It doesn’t matter if it’s a local broker, a mutual fund manager, private money manager or, god forbid, a hedge fund.
You can go to the prior posts, the early ones, and retrieve my thoughts on asset allocation and diversification. Now it’s time to talk about what to buy, specifically. Again, if you’ve read the prior posts, you know I recommend ETFs almost exclusively. If you have a 401k which doesn’t offer ETFs as an alternative, then choose the index funds available, not the managed funds. You will be tempted to pick the fund with the best “track record,” otherwise known as historical performance. Do NOT do it. You are not investing in the past, you are investing today. Past performance tells you exactly zero about future performance, so ignore it.
Here is the list of ETFs I like.
IJJ- S&P mid-cap value or JKI -Morningstar mid value index
IJS- S&P small cap value or JKL -Morningstar small value index
IYR-Dow Jones REIT index or ICF -Cohen Steers REIT index
RSP- S&P 500 equal weight index
I prefer value indexes to growth. You buy large, medium, small cap because there is some performance difference over time based on the size of the company. In theory, smaller stocks have more risk, thus higher return over the long term. In fact, middle sized stocks have performed better over time, so go figure. The main reason i suggest the above mix is that there is almost no duplication. You don't own the same stocks in the mid-cap fund as the large cap RSP or the small cap IJJ. Investors chronically hold three or four mutual funds with 30-40% or more of the same stocks in them. Another consequence of buying track records, or labels. One fund says growth-income, another growth, another American Value something or other, and the investor thinks he has diversified. You can't tell what's inside the fund by what it's called. One manager's growth is another's value, there is little consistency.
For international investing, I am seeking risk, not comfort, so I use the EEM or VWO which are two versions of the same index, the MSCI Emerging Markets Index. VWO has smaller administrative charges, thus over time should perform better since they both have the same stock mix.
I do NOT buy sectors or countries. No one is any better at picking sectors or countries than they are at picking mutual funds or individual stocks. It cannot be done with any accuracy and merely results in moving things around uselessly, usually at the exact wrong time.
If you want to simplify bond buying, use the following
SHY-Lehman 1-3 year treasury
IEI-Lehman 3-7 year treasury
IEF-Lehman 7-10 year treasury
NEVER buy bonds for yield, never buy corporates, munis are overrated for return, the yield almost always equals out to the amount you’d get on taxables after you paid the tax. Suit yourself on this however, it makes some people feel better to pay no tax on the income.
You want higher returns, buy more stocks. Drill into your brain, you buy bonds to get predictable income. Don’t stupidly increase the risk on the safe side of your portfolio to chase a point or so more yield. If you prefer individual bonds, buy government agencies no more than 10 years out. Buy a ladder, some due in 6 years, some in 7 on out to 10. When the 6 year becomes a 5 year, sometimes it pays to sell it and buy the next 10 year maturity (your former 10 year will be a nine year at this point.) Each year you sell the one with 5 years left, buy one with 10 year maturity. It doesn’t have to be scientific. If you let them ride for two or three years, then replace, it’s okay. In general, you want the yields in the 6-10 year range because they offer about as much income as you would get from a long term bond, without the price fluctuation of a long term maturity.
Next time, Want MORE Risk? There are ETFs for you. Actually several of them.