Sunday, March 19, 2006

My original investment allocation strategy

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My original strategy was to invest all retirement funds into Schwab's 2040 Target Retirement (SWERX), my cash in high yield money markets (4.5% at emigrant) and then put the rest in ETFs using a slightly different allocation strategy (at this time my non-retirement investment accounts are quite a bit smaller than my retirement).

Here's the original ETF strategy:

IWV 30% large blend Russell 3000
IWR 20% mid blend Russell mid cap
IJR 10% small blend s&p small 600
EFA 21% foreign blend MSCI EAFE
EEM 11% emerging markets
ILF 8% Latin America

This would increase my overall foreign allocation, which is 15% at SWERX.

Since the ETFs are small, over allocating foreign at 40% wouldn't increase them much yet.
I'd like to see overall about 25% foreign.

In talking with an investment friend today, he recommended that I do not put all my ETFs into foreign (i.e. don't put 100% of the ETFs into EFA, EEM and ILF). His logic was very interesting:

If everything's in one broad sector -- we'll call it foreign, I'll have nothing to rebalance my gains into, since I don't have any control over how Schwab allocates SWERX.

Consequently, I'll probably stick with ETFs somewhere between 30-50% in foreign (EFA, EEM and ILF). However, I need to look at everything once I've liquidated the variable insurance policies to see where that puts me, then I'll tweak things. For now, I think I'll over emphasized EFA in my upcoming monthly dollar cost averaging for the next two months - perhaps to push it to 35 % (from a target of 21%).

Japan should do well this year and Europe will find more efficiencies. I'm a bit leary about having too much in South America after their recent run-ups (ILF) and Schwab recently talked about limiting exposure to emerging markets to 5% now, but to be prepared to add more later in the year. (ouch - does this sound like market timing - maybe I need to kick myself)

Any advice or thoughts would be appreciated.


Making Our Way

PS In a future post I'll list my current investment allocation, however, it's the one I'm actively moving away from.

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