Just about every week, I receive reader requests to comment on their current portfolio holdings. The latest came from Martin, who had this to say:
I would be appreciative if you could make any recommendations or comments on my portfolio, as follows: I am a retiree with these vanguard funds: International growth-5%, Primecap core-21%, small cap growth-5%, wellington-3%, mid-growth-2%, small cap growth-7%, Inflation protected-7%, star fund-3%, healthcare-3%, intermediate investment grade-3%, convertible bond fund-4%, intermediate bondfund-2%. I also own Tiaa-Cref: tiqrx-3%, tiilx-8%, tibdx-3% and the balance in cash and individual bonds.
Your reply would be much appreciated as to whether these funds are suitable for a 70 year old, any that should be replaced or exchanged, etc.
While I can’t give specific advice without knowing more details about Martin, I can make some general observations.
To me, it would be interesting to know if you owned this portfolio last year and held on to it through the market crash. If so, you would know that just about all of your holdings declined sharply causing you severe portfolio anxiety.
If you set up this portfolio earlier this year, then you are sitting on some nice unrealized gains. The question in my mind simply is as to whether you are planning on holding this portfolio or if you are using an exit strategy to get out of those positions that decline with the next market pullback.
There is nothing wrong with your selection of funds if your mode of operation is to follow the trends until they end and then let your sell stops be your guide as to when to exit.
On the other hand, if you are asking me if this is a well diversified portfolio to hold onto no matter what, then my answer will be no. Last year has clearly shown that a portfolio, no matter how diversified, will go down in a bear market scenario.
Don’t participate when the next down leg starts, which it will; I am just not sure of the timing. At 70 years old, you can’t afford to take the incredible risk that buy-and-hold investing exposes you to.
Comments 3
Ullii,
Thanks for all that you do, for free even, that is nice. To the 70 year old person with an humongous number of funds, my question is why so many because when the trend turns down it will be hard to sell all those funds without penalty. Vanguard the last time I checked has some rediculous long holding periods and long periods to wait before getting back in if sold in a short time frame, which can happen when following trends. Personally I like AMAGX, AMANX,FUNDX, and HOTFX, which I find diversifies me plenty and FUNDX and HOTFX, which are funds made up with many funds and are upgraded continously and they do well in up trends. They are all available thru Scottrade in my case with only a 30 day holding period to trade without a redemption fee. If sold less than 90 days Scottrade charges a $17 fee per fund.
Thanks
Frank
Dear Ulli,
Isn't Martin duplicating diversification in a lot of these different funds? My guess is you could achieve the same level of diversification with six or eight funds at most, have a lot less to watch, and a lot fewer sales to make to follow an exit strategy. Do you agree?
Mel
Mel,
Yes, I agree. My point was that I think Martin's intention was to buy and hold, in which case all the diversification in the world will not protect this portfolio during a market downturn.
Ulli…