Can you assist me in developing a basic strategy for a little investing?
I'm up to about $20k that is readily available to invest, and I will be able to add about $1000 per month to that. I need some ideas that will get me on the right track. I dont mind a high risk factor, but i dont want to be too stupid like last time, either.
I'm thinking a little short-term, some long-term, and some high risk, but dont know what percentages to put where, or where to put it, and would definitely welcome some advice.
Answer:
The only thing you didn't mention was your age. But reading this I'm guessing in the 30's so this is what I have and you can take it from there.
First I started off with Mutual funds then last year migrated to ETF's (more volatility and higher buying fees but the rewards are well worth it).
My first advice is don't go over 20% on anything. I have 10 ETF's (may soon be pared down to collect the nice gains already obtained).
First is one of my bigger winners GLD. (Gold fund) Bought it first at 48 and steady increments until it went above 60 (currently in the 57 range) . Still have a nice profit on it but considering buying more especially if N. Korea has another nuke party.
Second and another huge winner was EEM (Emerging markets) International is the way to go and though EEM was in the 97's I stopped buying it in the mid 80's with my last purchase at 85 a few months ago. Recently sold it when i switched brokers and bought ADRE to replace it. Bought a few more today with a limit order of 32.50 thanks to the affore mentioned nuke party. And actually bought it when it opened at 32.41 (now at 32.76) :)
Staying on the international theme I had two plays in Europe IEV and EFA. IEV is a more diversified strictly european play and EFA is Europe Far east and Austrailia. Both of these were also sold when i switched brokers (from free investing at Sharebuilder to Think or swim) and replaced them with ADRA (The asian ETF fund and this one is a careful watch because of Korea again. and ADRU which is the European play.
No matter what you do you must have a core fund which is a halfway decent dividend US based, solid and as close to 20% as possible. I had two that fit this bill VB (small cap which I still have for the moment) and IWD which I sold and was the Ishares russell 1000 value. VB is a little pricey for me right now and my replacement is FDM (Dow Jones select microcap) micro cap may or may not be a smart play but it is my only small cap fund in the entire lot so it blends in well with everything else I have.
My IWD replacement is FDL which is the Morningstar Dividend leaders with a strong play in banking utilties some consumer goods, healthcare and telecommunications. This is a new ETF but the newness doesn't scare me.
Now then the wildcards most of these are in the 15-10% portfolio range. First wildcard is XLE Pure Oil/Energy play nothing more nothing less. Despite the prices of oiland gas dropping it makes me want to scarf up more of this fund. I mentioned Gold and that was only 5% of my portfolio.
The next and biggest wild card in the bunch (and only I recently loaded up on) is the hands down most hated sector in the early part of this year and was the root of all evil back in 2000-01.
Naturally the fund is the dreaded QQQQ fund everyone laughed at me when I started buying it up and going over 15% not more than three months ago when the price was around 35. My last buy before that was at 42 back in Feburary. I bought this on the correct instinct that one. Sony PSP3 was coming, 2 Microsoft Vista is coming 3 Heady duty hard ware requirements to run Vista which most of them are in the QQQQ's already. I am looking to sell it at 45 but not sure yet. You still have time to get in but don't over do it.
Two other funds I had until I got stopped out of them was commodity plays DBC and DJP. DJP is a far more diversified commodity play than DBC because DJP deals in cattle, gas, soem metals wheat and other areas. Shame it dropped too much I like it but commodity fund is a risky play right now anyway. When I lost too much I was looking for an alternative I scoured over everything before coming on this one little talked about ETF. I looked it over and thought this would be a great keeper especially at a 5% cap. It is a commodity play as well but its a low risk because this planet is LOADED with it. Powershares WATER Resources PHO. Jumped in at just under 17 staying the course and I may buy a few more shares of it.
So to summarize your core fund MUST BE CAPPED at 20% have a decent yield on it yadda yadda yadda.
My three core funds are VB, FDL and FDM all at just under 18%. (again soon to be two)
Next is the QQQQ's at 13 up from 9 when i went on that brief buying spree.
ADRE is next at 9.68% (like to get this up to 10%) which is a good safe spot for it.
My wild cards are XLE at a high 6.13% (perfer to keep it around 5%) ADRA and ADRU are my regional plays and those are just under 6% each which is good. Gold is at 4.5 which is why I haven't bought any yet but the price is good to buy. PHO brings up the rear with just under 2% which I think is too low and love to get up to 4 or 5%
Bottom Line your heavy speclative plays should be in the 5% range which all of these qualify for. Your strong international plays should be at the 10% range and your core funds capped at 20%. When Morningstar broke this portfolio down for me. Got some interesting numbers. 36% in Large value (may be a bit high but tolerable for now) 15% Large Core (not bad) 20% growth. Medium was 2-1-5 respectively (low but not that bad) and 7-8-6 in small (again this is with both VB and FDM that is high for small but again manageable). 60% US stocks 34% Foreign (excellent) Information 23.79% (high telecommunications is why here) 40.93 on Service and a 35.28 in manfacturing which includes my Oil play.
The foreign breakdown is as follows 16.75 europe (perfect) 5.2 Japan (a tad high but manageable) 2.95 Latin America (perfect) 7.38 pacific rim (this one should be lower but I can live with it as well).
So now you know what diversify means and I left out one thing that I do not have but probably need.Bonds. Haven't gotten the hang of the bonds yet but I want a very aggressive approach (got it) in a wide variety of both sectors and countries with some providing dividends (got it).
This plan may not work for you but hope it helps for a guide.
if you are looking for a high risk high return then try a small cap value fund. they are your best bet if you want to effectively diversify your portfolio. With the small cap investment you will be taking more risk and therefore should get a higher expected return. Your 20K is not enough to diversify yourself so you should go with a mutual fund. you can invest in some individual stocks but a majority should be in mutual funds.
The answers post by the user, for information only, BAnswer.com does not guarantee the right.
Other Questions and Answers: