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What has Your Portfolio Done for You Lately?

What has Your Portfolio Done for You Lately?

By Ron DeLegge, Editor

November 13, 2008


SAN DIEGO ( - Why are we so obsessed with the performance of individual stocks, individual mutual funds, and individual ETFs? Sure we can blame the financial media for misleading us, but donít we share in at least some of the blame?


For example, when you see a stock or fund thatís climbed by 75% in value, whatís your first reaction? If youíre like most of us, you say, ďI gotta own that stock or fund.Ē Then, just after you buy the darn thing, it mysteriously goes down 75%. What happened?


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The problem is that we are focused on the wrong thing. Instead of concentrating our attention on choosing the top performing stocks or funds, we should be focusing on other more important matters. Isnít the performance of our total portfolio really the bottom line? Forget about your individual holdings for a minute and ask yourself: What has my portfolio, as a whole, done for me lately?


If your investments are significantly down, but more than major stock averages, itís time for you to go back to the drawing board and start again. If youíre down, but not by as much as the market, you might be doing something right, but without personally looking at your portfolio I canít tell for sure. (If youíre older than 21 and you're beating the market because you have 99% of your money invested in Pokemon cards, check yourself into the nearest hospital immediately.)


Anyway, hereís a good place to begin:


Getting a Suitable Asset Mix

A common mistake made by many investors is to begin evaluating individual funds or stocks before first determining a suitable asset mix. Your asset mix (also known as ďasset allocationĒ) should be based upon your own unique financial goals. It should take into account your investment time horizon, your age, your income needs, and the maximum level of risk you can handle.


A good asset allocation should contain market exposure to major asset classes like bonds, commodities, international stocks, emerging markets stocks, international real estate, treasury inflation protected securities (TIPS), U.S. real estate and U.S. stocks. What percentage of your money do you want allocated to commodities? Bonds? U.S. stocks? Itís your responsibility to come up with the correct answer.  


Building with the Right Materials

After youíve determined what percentage of your money you want to each major asset class, then you can begin searching out funds that give you the best pure market exposure to those areas. In this regard, itís advisable to stick with index funds or index ETFs that follow true market benchmarks Ė not ones attempting to beat them.


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Examples of ETFs that match the above criteria are the following: Bonds (NYSEArca: BND), U.S. stocks (NYSEArca: VTI), commodities (NYSEArca: GSG), international stocks (NYSEArca: CWI), emerging markets stocks (NYSEArca: VWO), international real estate (NYSEArca: RWX), U.S. real estate (NYSEArca: VNQ), and TIPS (NYSEArca: TIP).  


Will the 2008 Tax Bomb Hit You?

Most investors are so busy fretting about the performance of their mutual funds, they forget about the tax consequences of owning them. Donít be distracted!


Itís already been widely reported that 2008 will be one of the worst tax bombs for buy-and-hold mutual fund investors in years. I estimate that fund investors will get slaughtered with tax gain distributions between $35 billion to $50 billion for 2008. This yearís tax bomb will be far worse than 2007ís record of $33.8 billion. Why do people insist on burdening themselves with avoidable taxes?


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To avoid getting hit by the 2008 tax bomb, hereís what you can do RIGHT NOW: If youíre sitting on sizeable mutual fund losses in a taxable account, take immediate action to avoid getting stuck with huge capital gains from your fund company. Contact them and find out the date and the size of 2008 capital gain distributions for the funds you own. If the tax gain distributions are greater than 3% of your fundís net asset value (NAV), consider selling the fund BEFORE the payment record date. If you wait until after the record date, you will have the displeasure of owning a mutual fund loser, plus paying additional taxes on gains caused by other investors. Itís your responsibility to minimize the destructive forces of taxes. Act!


Use Portfolio Tools

Today, thereís over 22,000 mutual funds (when you add up the maze of share classes), more than 6,000 stocks, and more than 700 ETFs to choose from. Which of these investments do you select? Which do you avoid? Instead of becoming a victim of choice anxiety, get help.


Since 2005, ETFguideís Ready-to-Go Portfolios have delivered money making results. Five of the six portfolios ETFguide offers are outperforming the S&P 500 in 2008. Itís neither luck nor brilliance, but having discipline and the right mix of funds to accomplish an investment goal.


This year our Sector Savvy portfolio is down just 7.09 percent compared to a 41 percent loss in the S&P 500. Last year the Sector Savvy portfolio beat the S&P by just over 3 percent. Click here to find out what mix of ETFs the Sector Savvy portfolio is using.

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