#targetdatefunds

[simplemoneyman-blog]

Almost Beat The S&P 500 Index

  If you continued to ride the market and in the process acquired some more investments in stocks or ETFs, chances are you’ve done well in 2017. But how do you how well your investments are doing or if they could or should be doing better? That’s where benchmarks come into the picture.   It’s nice to see that your investments are experiencing gains. At the same time, a benchmark should be used to determine if the gains are appropriate. For many of us, the benchmark is usually the S&P 500 index or the Dow Jones Industrial Average.   The past year, I almost beat the S&P 500. This is based on the data provided by Personal Capital – one of my favorite personal finance tools.

  As you can see, I finished 2017 with 18.78% and the S&P with 19.42% a difference of only.64%. I believe I could have come even closer or would have beaten the index if I didn’t sell off some stocks that were performing really well, thus licking in gains, and then rebalancing/diversifying by buying ETFs.   The stocks I sold were doing well and of course, that’s why it was hard to sell. But I decided to follow the advice of billionaire Warren Buffet – “buy low, sell high”. If it was easy everyone would do it, right?   For financial and psychological reasons it may be hard to sell a stock in the first place. Therefore, a psychological trick I like to use is to not track the stock anymore after I sold it. If it continues to rise, I won’t be mad at myself for selling it. If it falls, I would have made the right decision, even though I’m no longer monitoring it.      

Portfolio Composition Which Generated An Almost 19% Return

  My portfolio is roughly comprised of the following:   401k account – Vanguard index funds including small-cap, mid-cap, and international and less than 10% in bonds. These are crazy cheap to own have which is my favorite characteristic. Spouses 401k account – this holds a TRowe Price target date fund. I have to actually go in and see if other options are offered and if am able to save in fees by selecting my own allocation of funds. I’m not a fan of target date funds since I prefer to do my own allocation of funds and save in fees as a result. Traditional and Roth IRA accounts – both IRA accounts have either REITs and/or high yielding dividend securities as they are tax-sheltered. I felt like an IRA account is appropriate for these types of securities for my situation as I can avoid paying tax on the income earned….for now :-) Brokerage accounts – a collection of stocks, index funds and ETFs in multiple industries with a heavy weighting in technology and consumer cyclical. I have this weighting because I am most likely an end-user of the products offered by these companies. For example, I own Proctor and Gamble (PG). Their brands include Crest, Gillette, and Pampers among many others. These are brands that we have been purchasing for years and thus are satisfied with the quality of the products. Their long history and continuous increase in dividend provide comfort to me as an investor. Kid’s 529 account – this is a target date TRowe Price fund based on the estimated date our son is expected to start college. I really don’t count this as my portfolio as the funds are earmarked for the specific purpose of college education. Cash balance – this is a safety net due to an emergency (e.g. loss of job or accident). Also, it is a buffer for a possible future value investment opportunity when one arises.    

Where Did I Do Well?

  Overall in the core stock market with companies that are continuing to rise such as such as AMZN and NOC, I’ve done alright. From my minuscule stake in these two stocks, I’ve benefitted from a gain of more than 49% from AMZN and about 24% from NOC as compared with the S&P:  

        Extracted From Google Finance  

Where Can I Improve?

  As I mentioned earlier, my spouse’s 401k is a target date fund. I can and plan to go into the account and see what changes can be made to maintain or improve diversification and reduce fees. Over time, fees can eat up returns and as the balance increases so do the number in fees. With so many low-cost options of funds out there that are performing well as compared to their high-fee counterparts; it just doesn’t make sense to continue to pay for under-performance.   I believe I can also improve by diversifying into small-cap index funds. For example, Vanguard’s small-cap ETF (VB) doesn’t have a minimum investment amount since it’s an ETF. The fund did not beat the S&P 500 index; however, at a glance, it’s attractive due to the following:   The fee is super-low at 0.06% and the average annual 10-year return is 9.68%.   It will allow me to further diversify, seek long-term growth via the growth industry and benefit from low-fees in my after-tax account.   It does pay a decent dividend, most recently at .775 per share with the dividend yield averaged out to 2.03%. I try to place the higher income generating investments into an IRA or Roth account anyway for the tax savings.       Have you measured your accounts with a benchmark for the past year? If so, how did you do? How do you usually assess your financial investments to see what can be improved or optimized? Please share your thoughts below.       _________________________________________________________________________

I use  because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!   Read the full article

[correctsuccess]

Are You Planning to Use Target Date Funds in Retirement? 7 Key Considerations to Keep in Mind Getty getty When reviewing a consumer’s 401(ok) plan, I get fairly jazzed if I see a good Goal Date Fund (TDF) choice inside their funding lineup. I firmly imagine that a TDF is without doubt one of the finest default funding autos inside most company retirement plans. The best way a TDF works is straightforward. You decide the fund that matches your appro... # #TargetDateFunds #Investing #Retirement #TDF #TDFs

[cybergorillas]

In the words of the world’s greatest investor: "A low-cost index fund is the most sensible #equity investment for the great majority of investors. By periodically investing ( #dollarcostaveraging ) in an index fund, the know-nothing #investor can actually out-perform most investment professionals." #WarrenBuffett. Personally, my #nestegg money is invested in #indexfunds, #targetdatefunds, etc... Regular contributions are automatically made to it. I don’t even have to think about it much. I live off of what’s left after #saving and investing. Approx once a year I revisit my nest-egg/retirement accounts to make sure The #portfolios are balanced appropriately, but for the most part its set it and forget it. I have another account for investing my “play money” after the bills have been paid I use this account to pick individual stocks and try to beat the returns in my nest-egg account (which is pretty much whatever the US #stockmarket returns). I’ve had a pretty successful run beating the market but I’m no Warren Buffett. I just personally enjoy learning about the financial market, applying the lessons and sharing the knowledge. Many people are not aware of how the market can be leveraged as a means of generating wealth. It’s not just for the other guys (and gals) over there! MogulGrind’s goal is to start changing that. This is one way to help bridge the gap between the #haves and the #havenots. Leggo! #personalfinance #financialgoals #buildwealth #getrichslowly #success #levelup #mogulgrind https://www.instagram.com/p/CBjIgPsj5mG/?igshid=41k34jfnwd3t

[kgmeyer]

Target date funds are extremely popular. But they are all not the same or created equally. What you need to know. #investing #targetdatefund #retirement

[simplemoneyman-blog]

Almost Beat The S&P 500 Index

  If you continued to ride the market and in the process acquired some more investments in stocks or ETFs, chances are you’ve done well in 2017. But how do you how well your investments are doing or if they could or should be doing better? That’s where benchmarks come into the picture.   It’s nice to see that your investments are experiencing gains. At the same time, a benchmark should be used to determine if the gains are appropriate. For many of us, the benchmark is usually the S&P 500 index or the Dow Jones Industrial Average.   The past year, I almost beat the S&P 500. This is based on the data provided by Personal Capital – one of my favorite personal finance tools.

  As you can see, I finished 2017 with 18.78% and the S&P with 19.42% a difference of only.64%. I believe I could have come even closer or would have beaten the index if I didn’t sell off some stocks that were performing really well, thus licking in gains, and then rebalancing/diversifying by buying ETFs.   The stocks I sold were doing well and of course, that’s why it was hard to sell. But I decided to follow the advice of billionaire Warren Buffet – “buy low, sell high”. If it was easy everyone would do it, right?   For financial and psychological reasons it may be hard to sell a stock in the first place. Therefore, a psychological trick I like to use is to not track the stock anymore after I sold it. If it continues to rise, I won’t be mad at myself for selling it. If it falls, I would have made the right decision, even though I’m no longer monitoring it.      

Portfolio Composition Which Generated An Almost 19% Return

  My portfolio is roughly comprised of the following:   401k account – Vanguard index funds including small-cap, mid-cap, and international and less than 10% in bonds. These are crazy cheap to own have which is my favorite characteristic. Spouses 401k account – this holds a TRowe Price target date fund. I have to actually go in and see if other options are offered and if am able to save in fees by selecting my own allocation of funds. I’m not a fan of target date funds since I prefer to do my own allocation of funds and save in fees as a result. Traditional and Roth IRA accounts – both IRA accounts have either REITs and/or high yielding dividend securities as they are tax-sheltered. I felt like an IRA account is appropriate for these types of securities for my situation as I can avoid paying tax on the income earned….for now :-) Brokerage accounts – a collection of stocks, index funds and ETFs in multiple industries with a heavy weighting in technology and consumer cyclical. I have this weighting because I am most likely an end-user of the products offered by these companies. For example, I own Proctor and Gamble (PG). Their brands include Crest, Gillette, and Pampers among many others. These are brands that we have been purchasing for years and thus are satisfied with the quality of the products. Their long history and continuous increase in dividend provide comfort to me as an investor. Kid’s 529 account – this is a target date TRowe Price fund based on the estimated date our son is expected to start college. I really don’t count this as my portfolio as the funds are earmarked for the specific purpose of college education. Cash balance – this is a safety net due to an emergency (e.g. loss of job or accident). Also, it is a buffer for a possible future value investment opportunity when one arises.    

Where Did I Do Well?

  Overall in the core stock market with companies that are continuing to rise such as such as AMZN and NOC, I’ve done alright. From my minuscule stake in these two stocks, I’ve benefitted from a gain of more than 49% from AMZN and about 24% from NOC as compared with the S&P:  

        Extracted From Google Finance  

Where Can I Improve?

  As I mentioned earlier, my spouse’s 401k is a target date fund. I can and plan to go into the account and see what changes can be made to maintain or improve diversification and reduce fees. Over time, fees can eat up returns and as the balance increases so do the number in fees. With so many low-cost options of funds out there that are performing well as compared to their high-fee counterparts; it just doesn’t make sense to continue to pay for under-performance.   I believe I can also improve by diversifying into small-cap index funds. For example, Vanguard’s small-cap ETF (VB) doesn’t have a minimum investment amount since it’s an ETF. The fund did not beat the S&P 500 index; however, at a glance, it’s attractive due to the following:   The fee is super-low at 0.06% and the average annual 10-year return is 9.68%.   It will allow me to further diversify, seek long-term growth via the growth industry and benefit from low-fees in my after-tax account.   It does pay a decent dividend, most recently at .775 per share with the dividend yield averaged out to 2.03%. I try to place the higher income generating investments into an IRA or Roth account anyway for the tax savings.       Have you measured your accounts with a benchmark for the past year? If so, how did you do? How do you usually assess your financial investments to see what can be improved or optimized? Please share your thoughts below.       _________________________________________________________________________

I use  because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!   Read the full article

[simplemoneyman-blog]

Almost Beat The S&P 500 Index

  If you continued to ride the market and in the process acquired some more investments in stocks or ETFs, chances are you’ve done well in 2017. But how do you how well your investments are doing or if they could or should be doing better? That’s where benchmarks come into the picture.   It’s nice to see that your investments are experiencing gains. At the same time, a benchmark should be used to determine if the gains are appropriate. For many of us, the benchmark is usually the S&P 500 index or the Dow Jones Industrial Average.   The past year, I almost beat the S&P 500. This is based on the data provided by Personal Capital – one of my favorite personal finance tools.

  As you can see, I finished 2017 with 18.78% and the S&P with 19.42% a difference of only.64%. I believe I could have come even closer or would have beaten the index if I didn’t sell off some stocks that were performing really well, thus licking in gains, and then rebalancing/diversifying by buying ETFs.   The stocks I sold were doing well and of course, that’s why it was hard to sell. But I decided to follow the advice of billionaire Warren Buffet – “buy low, sell high”. If it was easy everyone would do it, right?   For financial and psychological reasons it may be hard to sell a stock in the first place. Therefore, a psychological trick I like to use is to not track the stock anymore after I sold it. If it continues to rise, I won’t be mad at myself for selling it. If it falls, I would have made the right decision, even though I’m no longer monitoring it.      

Portfolio Composition Which Generated An Almost 19% Return

  My portfolio is roughly comprised of the following:   401k account – Vanguard index funds including small-cap, mid-cap, and international and less than 10% in bonds. These are crazy cheap to own have which is my favorite characteristic. Spouses 401k account – this holds a TRowe Price target date fund. I have to actually go in and see if other options are offered and if am able to save in fees by selecting my own allocation of funds. I’m not a fan of target date funds since I prefer to do my own allocation of funds and save in fees as a result. Traditional and Roth IRA accounts – both IRA accounts have either REITs and/or high yielding dividend securities as they are tax-sheltered. I felt like an IRA account is appropriate for these types of securities for my situation as I can avoid paying tax on the income earned….for now :-) Brokerage accounts – a collection of stocks, index funds and ETFs in multiple industries with a heavy weighting in technology and consumer cyclical. I have this weighting because I am most likely an end-user of the products offered by these companies. For example, I own Proctor and Gamble (PG). Their brands include Crest, Gillette, and Pampers among many others. These are brands that we have been purchasing for years and thus are satisfied with the quality of the products. Their long history and continuous increase in dividend provide comfort to me as an investor. Kid’s 529 account – this is a target date TRowe Price fund based on the estimated date our son is expected to start college. I really don’t count this as my portfolio as the funds are earmarked for the specific purpose of college education. Cash balance – this is a safety net due to an emergency (e.g. loss of job or accident). Also, it is a buffer for a possible future value investment opportunity when one arises.    

Where Did I Do Well?

  Overall in the core stock market with companies that are continuing to rise such as such as AMZN and NOC, I’ve done alright. From my minuscule stake in these two stocks, I’ve benefitted from a gain of more than 49% from AMZN and about 24% from NOC as compared with the S&P:  

        Extracted From Google Finance  

Where Can I Improve?

  As I mentioned earlier, my spouse’s 401k is a target date fund. I can and plan to go into the account and see what changes can be made to maintain or improve diversification and reduce fees. Over time, fees can eat up returns and as the balance increases so do the number in fees. With so many low-cost options of funds out there that are performing well as compared to their high-fee counterparts; it just doesn’t make sense to continue to pay for under-performance.   I believe I can also improve by diversifying into small-cap index funds. For example, Vanguard’s small-cap ETF (VB) doesn’t have a minimum investment amount since it’s an ETF. The fund did not beat the S&P 500 index; however, at a glance, it’s attractive due to the following:   The fee is super-low at 0.06% and the average annual 10-year return is 9.68%.   It will allow me to further diversify, seek long-term growth via the growth industry and benefit from low-fees in my after-tax account.   It does pay a decent dividend, most recently at .775 per share with the dividend yield averaged out to 2.03%. I try to place the higher income generating investments into an IRA or Roth account anyway for the tax savings.       Have you measured your accounts with a benchmark for the past year? If so, how did you do? How do you usually assess your financial investments to see what can be improved or optimized? Please share your thoughts below.       _________________________________________________________________________

I use  because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!   Read the full article

[simplemoneyman-blog]

From Target Date Funds To Lower Cost Index Funds

Also featured as a guest post on Mustard Seed Money:   Usually, on the first day of a new job, we receive some new hire paperwork from Human Resources. Included in that package is paperwork concerning which retirement plan we’d like to participate in, how much we’d like to contribute and how to get started. Sometimes we have to go online and complete this information.   The process of going through retirement paperwork can be overwhelming, to say the least. It’s because we are generally provided with a bunch of options or funds to choose from. In the end, we may just say I don’t feel like dealing with all this reading and will take the easy way out and pick a retirement fund option known as a target date fund. In recent years, more and more employers have started to offer this simple way for its employees to save for retirement.   Target date funds are mutual funds that generate an asset mix based on the anticipated date the participant is expected to retire. For example, if you are in your 20s and plan to retire in 2060, you would select a 2060 target date fund. This target date fund would be designed to be aggressive in its investment allocation. That is, it would have holdings in small-cap and growth companies and as the years go back would readjust the asset mix into more conservative assets such as bond funds and other cash equivalents. Thereby the fund “targets” the year of retirement based on its name and adjusts investments within the fund accordingly.    

History of Target Date Funds

  Target-date funds were created in 1994. This was in response to a lack of education by participants in 401(k) plans. Many participants were just not willing to conduct their own asset allocation and because of this nervousness and lack of desire on the part of the participants, the demand for target-date funds was born. They were first introduced by Wells Fargo and Barclays Global Investors.  Ofcourse in the late 90s and early 2000s, other investment companies joined the trend such as Fidelity, TRowe Price, and Vanguard with their own target date funds.   In order to facility so many participants into these retirement plans in an efficient way, groups or clusters of funds were created. These creations were distinguished by the average years' participants were expected to enter into retirement.   So for a 25-year old planning to retire at age 65, a 2060 target fund may be appropriate. For a 30-year old a 2055 fun and 35-year old a 2050 fund may be the right choice. You get the picture. The further away you are from retirement, the more aggressive the fund’s portfolio model will be (i.e., more in stocks and less in bonds). The closer you are to retirement, the more conservative and the fund allocation will adjust by itself without you having to go in and do anything. Sounds easy right? It sure is and that is why so many people decide to enroll in them.    

Target Funds Today

  Target-date funds continue to be super-popular these days in workplace retirement plans. They are easily accessible as they are offered by many employers. My previous two employers offered target-date funds and yes I was enrolled in them.   Even at my current employer, I initially selected a target date fund. It allowed me to be, well quite honestly lazy with my retirement planning. This along with the fact that target dates funds are the default funds offered in most defined contribution plans. Furthermore, many employers offer automatic enrollment as well as these funds and once people are in most don’t bother changing their investments because they know the target date fund will take care of it.   And even in my very first job which offered a 401k plan, most likely I selected a target date fund because I didn’t know much about the other funds. I probably read that this fund is for people that plan to retire in year 20XX. And so I took my calculator and did a quick difference between my age and 65 or 67 and said ok, that’s the one that’s right for me, ignoring everything else and moving on to the next piece of new hire paperwork.    

Target Date Funds Composition

  Target date funds have within them funds. So a target date fund is basically a fund of funds. It may have some money in a large-cap fund, some in a mid-cap fund, and some in a small-cap fund. It may have some money in an international fund, and some in a bond fund. Generally, the underlying funds in a target fund are from the same fund family.   So for example, if you are in a Fidelity target date fund or what Fidelity calls a Freedom Fund, the underlying funds are that of Fidelity as well and you as an investor have no control of those funds. Check out the allocation below of the Fidelity Freedom Index 2050 Fund:  

    Target Fund May Not Be My Target

  As we already know the closer someone is to retirement, the more a target fund’s objective changes to a more conservative investing approach. In sticking with the Fidelity Freedom Index 2050 Fund mentioned above, it has 26.94% in International Equity Funds. However, the Fidelity Freedom 2040 Fund has 31.13% in International Equity Funds.   If you are bullish in the international sector and are seeking more diversification and exposure there, but are comfortable with your domestic allocation, maybe you should develop your own mix of lower cost index funds and save in fees. This is what ended up doing and will discuss later.   Additionally, the set it and forget it nature of target funds is not one favored by many investment publications including Motley Fool who states that it’s important to continuously monitor the underlying fund performance to make sure it's meeting your expectations in terms of risk tolerance and returns. And up until a few months ago, I started thinking, are target date funds really worth it? Should I employ a set it and forget it approach for something as big as retirement? Well maybe, but maybe not.    

Target Date Fund Performance

  Apart from having less flexibility in allocating with target funds, another drawback is performance. The target date fund I previously had is a fund of funds. The underlying funds are actively managed. According to CNBC, many actively managed funds are being outperformed by passive funds and ETFs. And about 85% of active large-cap funds fail to meet their benchmarks.   The article further identifies Vanguard (the biggest provider of index products) which has received $216 billion in inflows. I’ve found that it really only makes sense to own an actively managed fund if you’re looking for a particular investment and in a specific sector as illustrated by Verdan Vuk, Senior Analyst for Money Forever. Otherwise, he says you’re just wasting money.    

Target Date Fund Fees

  If you’re putting money into a retirement plan, you’re doing better than two-thirds of Americans because who are otherwise not. So you’re already ahead of the game anyway. But there may be a way to do better and that is by avoiding excessive fees.  One of the main reasons why investors avoid target date fund is very simple: high fees. Everywhere I read this is a common theme as some fund companies can “charge twice or even three times” the amount in fees as their competitors.   The fund I was in (TRRMX or T. Rowe Price Retirement 2050 Fund) has an expense ratio of 0.76%.  So I decided to take action by logging into my account and creating my own allocation. My retirement website offers an interactive tool where I can enter data such as my age, when I plan to retire, how much I plan to spend in retirement, and what I’ve saved thus far. The output results in the creation of a customized allocation.  This is the allocation model that was suggested for the variables I provided:  

  Using this model, I proceeded to allocate my current fund and al future contributions from the target date fund into lower-cost index funds. This movement of investments is offered for free by my retirement provider and maybe by yours as well! Below is my new self-created portfolio model:     Investments & Allocation Expense Ratio Asset Class Vanguard Total International Stock Index Fund - Institutional Shares - 25% 0.090% Int'l Vanguard(R) Small-Cap Index Fund - Institutional Shares - 5% 0.050% Small-Cap Vanguard(R) Mid-Cap Index Fund - Institutional Plus Shares - 10% 0.010% Mid-Cap Vanguard(R) Institutional Index Fund - Institutional Plus Shares - 50% 0.020% Large-Cap Vanguard(R) Total Bond Market Index Fund - Institutional Shares  - 7% 0.040% Bonds *Investment Contract Pool - 3% * Total Expense Ratio 0.210% Target Fund 0.760% Difference 0.550%     And with this change, I’ll be saving over half a percent in annual fees, as highlighted above! Trust me, over-time that can add up to a lot in fees. I did the math really quickly and when the balance gets higher the expense ratio really starts making a difference:     When 401k Balance Is: Ratio Difference Annual Savings  $          100,000 0.550%  $            550  $          500,000 0.550%  $         2,750  $       1,000,000 0.550%  $         5,500  $       1,500,000 0.550%  $         8,250     So I went online a googled some more, for an expense ratio calculator. I found a simple one on Begin to Invest. Based on the below calculation, if someone were to have $200,000 as a starting point and decided to move investments, contribute the maximum as it stands right now, earn 6%, then they’d save over $280,000 over 30 years when employing a low-cost index fund VA a target date fund:  

    I encourage everyone to use this site and plug in some hypotheticals to see what savings are available.    

Take Charge or Your Investments

  Retirement is a major part of our lives. And as such, planning for it should be as well. We owe it to ourselves to learn more about low-cost index funds because they cost less than target funds and have performed better historically. Why pay more and get less?     So readers are you in a target retirement fund? If so, have you thought about moving to lower cost index-funds?   ______________________________________________________________________________

  I use  because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!   Read the full article

[simplemoneyman-blog]

Almost Beat The S&P 500 Index

  If you continued to ride the market and in the process acquired some more investments in stocks or ETFs, chances are you’ve done well in 2017. But how do you how well your investments are doing or if they could or should be doing better? That’s where benchmarks come into the picture.   It’s nice to see that your investments are experiencing gains. At the same time, a benchmark should be used to determine if the gains are appropriate. For many of us, the benchmark is usually the S&P 500 index or the Dow Jones Industrial Average.   The past year, I almost beat the S&P 500. This is based on the data provided by Personal Capital – one of my favorite personal finance tools.

  As you can see, I finished 2017 with 18.78% and the S&P with 19.42% a difference of only.64%. I believe I could have come even closer or would have beaten the index if I didn’t sell off some stocks that were performing really well, thus licking in gains, and then rebalancing/diversifying by buying ETFs.   The stocks I sold were doing well and of course, that’s why it was hard to sell. But I decided to follow the advice of billionaire Warren Buffet – “buy low, sell high”. If it was easy everyone would do it, right?   For financial and psychological reasons it may be hard to sell a stock in the first place. Therefore, a psychological trick I like to use is to not track the stock anymore after I sold it. If it continues to rise, I won’t be mad at myself for selling it. If it falls, I would have made the right decision, even though I’m no longer monitoring it.      

Portfolio Composition Which Generated An Almost 19% Return

  My portfolio is roughly comprised of the following:   401k account – Vanguard index funds including small-cap, mid-cap, and international and less than 10% in bonds. These are crazy cheap to own have which is my favorite characteristic. Spouses 401k account – this holds a TRowe Price target date fund. I have to actually go in and see if other options are offered and if am able to save in fees by selecting my own allocation of funds. I’m not a fan of target date funds since I prefer to do my own allocation of funds and save in fees as a result. Traditional and Roth IRA accounts – both IRA accounts have either REITs and/or high yielding dividend securities as they are tax-sheltered. I felt like an IRA account is appropriate for these types of securities for my situation as I can avoid paying tax on the income earned….for now :-) Brokerage accounts – a collection of stocks, index funds and ETFs in multiple industries with a heavy weighting in technology and consumer cyclical. I have this weighting because I am most likely an end-user of the products offered by these companies. For example, I own Proctor and Gamble (PG). Their brands include Crest, Gillette, and Pampers among many others. These are brands that we have been purchasing for years and thus are satisfied with the quality of the products. Their long history and continuous increase in dividend provide comfort to me as an investor. Kid’s 529 account – this is a target date TRowe Price fund based on the estimated date our son is expected to start college. I really don’t count this as my portfolio as the funds are earmarked for the specific purpose of college education. Cash balance – this is a safety net due to an emergency (e.g. loss of job or accident). Also, it is a buffer for a possible future value investment opportunity when one arises.    

Where Did I Do Well?

  Overall in the core stock market with companies that are continuing to rise such as such as AMZN and NOC, I’ve done alright. From my minuscule stake in these two stocks, I’ve benefitted from a gain of more than 49% from AMZN and about 24% from NOC as compared with the S&P:  

        Extracted From Google Finance  

Where Can I Improve?

  As I mentioned earlier, my spouse’s 401k is a target date fund. I can and plan to go into the account and see what changes can be made to maintain or improve diversification and reduce fees. Over time, fees can eat up returns and as the balance increases so do the number in fees. With so many low-cost options of funds out there that are performing well as compared to their high-fee counterparts; it just doesn’t make sense to continue to pay for under-performance.   I believe I can also improve by diversifying into small-cap index funds. For example, Vanguard’s small-cap ETF (VB) doesn’t have a minimum investment amount since it’s an ETF. The fund did not beat the S&P 500 index; however, at a glance, it’s attractive due to the following:   The fee is super-low at 0.06% and the average annual 10-year return is 9.68%.   It will allow me to further diversify, seek long-term growth via the growth industry and benefit from low-fees in my after-tax account.   It does pay a decent dividend, most recently at .775 per share with the dividend yield averaged out to 2.03%. I try to place the higher income generating investments into an IRA or Roth account anyway for the tax savings.       Have you measured your accounts with a benchmark for the past year? If so, how did you do? How do you usually assess your financial investments to see what can be improved or optimized? Please share your thoughts below.       _________________________________________________________________________

I use  because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!   Read the full article

[simplemoneyman-blog]

From Target Date Funds To Lower Cost Index Funds

Also featured as a guest post on Mustard Seed Money:   Usually, on the first day of a new job, we receive some new hire paperwork from Human Resources. Included in that package is paperwork concerning which retirement plan we’d like to participate in, how much we’d like to contribute and how to get started. Sometimes we have to go online and complete this information.   The process of going through retirement paperwork can be overwhelming, to say the least. It’s because we are generally provided with a bunch of options or funds to choose from. In the end, we may just say I don’t feel like dealing with all this reading and will take the easy way out and pick a retirement fund option known as a target date fund. In recent years, more and more employers have started to offer this simple way for its employees to save for retirement.   Target date funds are mutual funds that generate an asset mix based on the anticipated date the participant is expected to retire. For example, if you are in your 20s and plan to retire in 2060, you would select a 2060 target date fund. This target date fund would be designed to be aggressive in its investment allocation. That is, it would have holdings in small-cap and growth companies and as the years go back would readjust the asset mix into more conservative assets such as bond funds and other cash equivalents. Thereby the fund “targets” the year of retirement based on its name and adjusts investments within the fund accordingly.    

History of Target Date Funds

  Target-date funds were created in 1994. This was in response to a lack of education by participants in 401(k) plans. Many participants were just not willing to conduct their own asset allocation and because of this nervousness and lack of desire on the part of the participants, the demand for target-date funds was born. They were first introduced by Wells Fargo and Barclays Global Investors.  Ofcourse in the late 90s and early 2000s, other investment companies joined the trend such as Fidelity, TRowe Price, and Vanguard with their own target date funds.   In order to facility so many participants into these retirement plans in an efficient way, groups or clusters of funds were created. These creations were distinguished by the average years' participants were expected to enter into retirement.   So for a 25-year old planning to retire at age 65, a 2060 target fund may be appropriate. For a 30-year old a 2055 fun and 35-year old a 2050 fund may be the right choice. You get the picture. The further away you are from retirement, the more aggressive the fund’s portfolio model will be (i.e., more in stocks and less in bonds). The closer you are to retirement, the more conservative and the fund allocation will adjust by itself without you having to go in and do anything. Sounds easy right? It sure is and that is why so many people decide to enroll in them.    

Target Funds Today

  Target-date funds continue to be super-popular these days in workplace retirement plans. They are easily accessible as they are offered by many employers. My previous two employers offered target-date funds and yes I was enrolled in them.   Even at my current employer, I initially selected a target date fund. It allowed me to be, well quite honestly lazy with my retirement planning. This along with the fact that target dates funds are the default funds offered in most defined contribution plans. Furthermore, many employers offer automatic enrollment as well as these funds and once people are in most don’t bother changing their investments because they know the target date fund will take care of it.   And even in my very first job which offered a 401k plan, most likely I selected a target date fund because I didn’t know much about the other funds. I probably read that this fund is for people that plan to retire in year 20XX. And so I took my calculator and did a quick difference between my age and 65 or 67 and said ok, that’s the one that’s right for me, ignoring everything else and moving on to the next piece of new hire paperwork.    

Target Date Funds Composition

  Target date funds have within them funds. So a target date fund is basically a fund of funds. It may have some money in a large-cap fund, some in a mid-cap fund, and some in a small-cap fund. It may have some money in an international fund, and some in a bond fund. Generally, the underlying funds in a target fund are from the same fund family.   So for example, if you are in a Fidelity target date fund or what Fidelity calls a Freedom Fund, the underlying funds are that of Fidelity as well and you as an investor have no control of those funds. Check out the allocation below of the Fidelity Freedom Index 2050 Fund:  

    Target Fund May Not Be My Target

  As we already know the closer someone is to retirement, the more a target fund’s objective changes to a more conservative investing approach. In sticking with the Fidelity Freedom Index 2050 Fund mentioned above, it has 26.94% in International Equity Funds. However, the Fidelity Freedom 2040 Fund has 31.13% in International Equity Funds.   If you are bullish in the international sector and are seeking more diversification and exposure there, but are comfortable with your domestic allocation, maybe you should develop your own mix of lower cost index funds and save in fees. This is what ended up doing and will discuss later.   Additionally, the set it and forget it nature of target funds is not one favored by many investment publications including Motley Fool who states that it’s important to continuously monitor the underlying fund performance to make sure it's meeting your expectations in terms of risk tolerance and returns. And up until a few months ago, I started thinking, are target date funds really worth it? Should I employ a set it and forget it approach for something as big as retirement? Well maybe, but maybe not.    

Target Date Fund Performance

  Apart from having less flexibility in allocating with target funds, another drawback is performance. The target date fund I previously had is a fund of funds. The underlying funds are actively managed. According to CNBC, many actively managed funds are being outperformed by passive funds and ETFs. And about 85% of active large-cap funds fail to meet their benchmarks.   The article further identifies Vanguard (the biggest provider of index products) which has received $216 billion in inflows. I’ve found that it really only makes sense to own an actively managed fund if you’re looking for a particular investment and in a specific sector as illustrated by Verdan Vuk, Senior Analyst for Money Forever. Otherwise, he says you’re just wasting money.    

Target Date Fund Fees

  If you’re putting money into a retirement plan, you’re doing better than two-thirds of Americans because who are otherwise not. So you’re already ahead of the game anyway. But there may be a way to do better and that is by avoiding excessive fees.  One of the main reasons why investors avoid target date fund is very simple: high fees. Everywhere I read this is a common theme as some fund companies can “charge twice or even three times” the amount in fees as their competitors.   The fund I was in (TRRMX or T. Rowe Price Retirement 2050 Fund) has an expense ratio of 0.76%.  So I decided to take action by logging into my account and creating my own allocation. My retirement website offers an interactive tool where I can enter data such as my age, when I plan to retire, how much I plan to spend in retirement, and what I’ve saved thus far. The output results in the creation of a customized allocation.  This is the allocation model that was suggested for the variables I provided:  

  Using this model, I proceeded to allocate my current fund and al future contributions from the target date fund into lower-cost index funds. This movement of investments is offered for free by my retirement provider and maybe by yours as well! Below is my new self-created portfolio model:     Investments & Allocation Expense Ratio Asset Class Vanguard Total International Stock Index Fund - Institutional Shares - 25% 0.090% Int'l Vanguard(R) Small-Cap Index Fund - Institutional Shares - 5% 0.050% Small-Cap Vanguard(R) Mid-Cap Index Fund - Institutional Plus Shares - 10% 0.010% Mid-Cap Vanguard(R) Institutional Index Fund - Institutional Plus Shares - 50% 0.020% Large-Cap Vanguard(R) Total Bond Market Index Fund - Institutional Shares  - 7% 0.040% Bonds *Investment Contract Pool - 3% * Total Expense Ratio 0.210% Target Fund 0.760% Difference 0.550%     And with this change, I’ll be saving over half a percent in annual fees, as highlighted above! Trust me, over-time that can add up to a lot in fees. I did the math really quickly and when the balance gets higher the expense ratio really starts making a difference:     When 401k Balance Is: Ratio Difference Annual Savings  $          100,000 0.550%  $            550  $          500,000 0.550%  $         2,750  $       1,000,000 0.550%  $         5,500  $       1,500,000 0.550%  $         8,250     So I went online a googled some more, for an expense ratio calculator. I found a simple one on Begin to Invest. Based on the below calculation, if someone were to have $200,000 as a starting point and decided to move investments, contribute the maximum as it stands right now, earn 6%, then they’d save over $280,000 over 30 years when employing a low-cost index fund VA a target date fund:  

    I encourage everyone to use this site and plug in some hypotheticals to see what savings are available.    

Take Charge or Your Investments

  Retirement is a major part of our lives. And as such, planning for it should be as well. We owe it to ourselves to learn more about low-cost index funds because they cost less than target funds and have performed better historically. Why pay more and get less?     So readers are you in a target retirement fund? If so, have you thought about moving to lower cost index-funds?   ______________________________________________________________________________

  I use  because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!   Read the full article

[simplemoneyman-blog]

Almost Beat The S&P 500 Index

  If you continued to ride the market and in the process acquired some more investments in stocks or ETFs, chances are you’ve done well in 2017. But how do you how well your investments are doing or if they could or should be doing better? That’s where benchmarks come into the picture.   It’s nice to see that your investments are experiencing gains. At the same time, a benchmark should be used to determine if the gains are appropriate. For many of us, the benchmark is usually the S&P 500 index or the Dow Jones Industrial Average.   The past year, I almost beat the S&P 500. This is based on the data provided by Personal Capital – one of my favorite personal finance tools.

  As you can see, I finished 2017 with 18.78% and the S&P with 19.42% a difference of only.64%. I believe I could have come even closer or would have beaten the index if I didn’t sell off some stocks that were performing really well, thus licking in gains, and then rebalancing/diversifying by buying ETFs.   The stocks I sold were doing well and of course, that’s why it was hard to sell. But I decided to follow the advice of billionaire Warren Buffet – “buy low, sell high”. If it was easy everyone would do it, right?   For financial and psychological reasons it may be hard to sell a stock in the first place. Therefore, a psychological trick I like to use is to not track the stock anymore after I sold it. If it continues to rise, I won’t be mad at myself for selling it. If it falls, I would have made the right decision, even though I’m no longer monitoring it.      

Portfolio Composition Which Generated An Almost 19% Return

  My portfolio is roughly comprised of the following:   401k account – Vanguard index funds including small-cap, mid-cap, and international and less than 10% in bonds. These are crazy cheap to own have which is my favorite characteristic. Spouses 401k account – this holds a TRowe Price target date fund. I have to actually go in and see if other options are offered and if am able to save in fees by selecting my own allocation of funds. I’m not a fan of target date funds since I prefer to do my own allocation of funds and save in fees as a result. Traditional and Roth IRA accounts – both IRA accounts have either REITs and/or high yielding dividend securities as they are tax-sheltered. I felt like an IRA account is appropriate for these types of securities for my situation as I can avoid paying tax on the income earned….for now :-) Brokerage accounts – a collection of stocks, index funds and ETFs in multiple industries with a heavy weighting in technology and consumer cyclical. I have this weighting because I am most likely an end-user of the products offered by these companies. For example, I own Proctor and Gamble (PG). Their brands include Crest, Gillette, and Pampers among many others. These are brands that we have been purchasing for years and thus are satisfied with the quality of the products. Their long history and continuous increase in dividend provide comfort to me as an investor. Kid’s 529 account – this is a target date TRowe Price fund based on the estimated date our son is expected to start college. I really don’t count this as my portfolio as the funds are earmarked for the specific purpose of college education. Cash balance – this is a safety net due to an emergency (e.g. loss of job or accident). Also, it is a buffer for a possible future value investment opportunity when one arises.    

Where Did I Do Well?

  Overall in the core stock market with companies that are continuing to rise such as such as AMZN and NOC, I’ve done alright. From my minuscule stake in these two stocks, I’ve benefitted from a gain of more than 49% from AMZN and about 24% from NOC as compared with the S&P:  

        Extracted From Google Finance  

Where Can I Improve?

  As I mentioned earlier, my spouse’s 401k is a target date fund. I can and plan to go into the account and see what changes can be made to maintain or improve diversification and reduce fees. Over time, fees can eat up returns and as the balance increases so do the number in fees. With so many low-cost options of funds out there that are performing well as compared to their high-fee counterparts; it just doesn’t make sense to continue to pay for under-performance.   I believe I can also improve by diversifying into small-cap index funds. For example, Vanguard’s small-cap ETF (VB) doesn’t have a minimum investment amount since it’s an ETF. The fund did not beat the S&P 500 index; however, at a glance, it’s attractive due to the following:   The fee is super-low at 0.06% and the average annual 10-year return is 9.68%.   It will allow me to further diversify, seek long-term growth via the growth industry and benefit from low-fees in my after-tax account.   It does pay a decent dividend, most recently at .775 per share with the dividend yield averaged out to 2.03%. I try to place the higher income generating investments into an IRA or Roth account anyway for the tax savings.       Have you measured your accounts with a benchmark for the past year? If so, how did you do? How do you usually assess your financial investments to see what can be improved or optimized? Please share your thoughts below.       _________________________________________________________________________

I use  because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!   Read the full article

[simplemoneyman-blog]

Almost Beat The S&P 500 Index

  If you continued to ride the market and in the process acquired some more investments in stocks or ETFs, chances are you’ve done well in 2017. But how do you how well your investments are doing or if they could or should be doing better? That’s where benchmarks come into the picture.   It’s nice to see that your investments are experiencing gains. At the same time, a benchmark should be used to determine if the gains are appropriate. For many of us, the benchmark is usually the S&P 500 index or the Dow Jones Industrial Average.   The past year, I almost beat the S&P 500. This is based on the data provided by Personal Capital – one of my favorite personal finance tools.

  As you can see, I finished 2017 with 18.78% and the S&P with 19.42% a difference of only.64%. I believe I could have come even closer or would have beaten the index if I didn’t sell off some stocks that were performing really well, thus licking in gains, and then rebalancing/diversifying by buying ETFs.   The stocks I sold were doing well and of course, that’s why it was hard to sell. But I decided to follow the advice of billionaire Warren Buffet – “buy low, sell high”. If it was easy everyone would do it, right?   For financial and psychological reasons it may be hard to sell a stock in the first place. Therefore, a psychological trick I like to use is to not track the stock anymore after I sold it. If it continues to rise, I won’t be mad at myself for selling it. If it falls, I would have made the right decision, even though I’m no longer monitoring it.      

Portfolio Composition Which Generated An Almost 19% Return

  My portfolio is roughly comprised of the following:   401k account – Vanguard index funds including small-cap, mid-cap, and international and less than 10% in bonds. These are crazy cheap to own have which is my favorite characteristic. Spouses 401k account – this holds a TRowe Price target date fund. I have to actually go in and see if other options are offered and if am able to save in fees by selecting my own allocation of funds. I’m not a fan of target date funds since I prefer to do my own allocation of funds and save in fees as a result. Traditional and Roth IRA accounts – both IRA accounts have either REITs and/or high yielding dividend securities as they are tax-sheltered. I felt like an IRA account is appropriate for these types of securities for my situation as I can avoid paying tax on the income earned….for now :-) Brokerage accounts – a collection of stocks, index funds and ETFs in multiple industries with a heavy weighting in technology and consumer cyclical. I have this weighting because I am most likely an end-user of the products offered by these companies. For example, I own Proctor and Gamble (PG). Their brands include Crest, Gillette, and Pampers among many others. These are brands that we have been purchasing for years and thus are satisfied with the quality of the products. Their long history and continuous increase in dividend provide comfort to me as an investor. Kid’s 529 account – this is a target date TRowe Price fund based on the estimated date our son is expected to start college. I really don’t count this as my portfolio as the funds are earmarked for the specific purpose of college education. Cash balance – this is a safety net due to an emergency (e.g. loss of job or accident). Also, it is a buffer for a possible future value investment opportunity when one arises.    

Where Did I Do Well?

  Overall in the core stock market with companies that are continuing to rise such as such as AMZN and NOC, I’ve done alright. From my minuscule stake in these two stocks, I’ve benefitted from a gain of more than 49% from AMZN and about 24% from NOC as compared with the S&P:  

        Extracted From Google Finance  

Where Can I Improve?

  As I mentioned earlier, my spouse’s 401k is a target date fund. I can and plan to go into the account and see what changes can be made to maintain or improve diversification and reduce fees. Over time, fees can eat up returns and as the balance increases so do the number in fees. With so many low-cost options of funds out there that are performing well as compared to their high-fee counterparts; it just doesn’t make sense to continue to pay for under-performance.   I believe I can also improve by diversifying into small-cap index funds. For example, Vanguard’s small-cap ETF (VB) doesn’t have a minimum investment amount since it’s an ETF. The fund did not beat the S&P 500 index; however, at a glance, it’s attractive due to the following:   The fee is super-low at 0.06% and the average annual 10-year return is 9.68%.   It will allow me to further diversify, seek long-term growth via the growth industry and benefit from low-fees in my after-tax account.   It does pay a decent dividend, most recently at .775 per share with the dividend yield averaged out to 2.03%. I try to place the higher income generating investments into an IRA or Roth account anyway for the tax savings.       Have you measured your accounts with a benchmark for the past year? If so, how did you do? How do you usually assess your financial investments to see what can be improved or optimized? Please share your thoughts below.       _________________________________________________________________________

I use  because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!   Read the full article

[simplemoneyman-blog]

Almost Beat The S&P 500 Index

  If you continued to ride the market and in the process acquired some more investments in stocks or ETFs, chances are you’ve done well in 2017. But how do you how well your investments are doing or if they could or should be doing better? That’s where benchmarks come into the picture.   It’s nice to see that your investments are experiencing gains. At the same time, a benchmark should be used to determine if the gains are appropriate. For many of us, the benchmark is usually the S&P 500 index or the Dow Jones Industrial Average.   The past year, I almost beat the S&P 500. This is based on the data provided by Personal Capital – one of my favorite personal finance tools.

  As you can see, I finished 2017 with 18.78% and the S&P with 19.42% a difference of only.64%. I believe I could have come even closer or would have beaten the index if I didn’t sell off some stocks that were performing really well, thus licking in gains, and then rebalancing/diversifying by buying ETFs.   The stocks I sold were doing well and of course, that’s why it was hard to sell. But I decided to follow the advice of billionaire Warren Buffet – “buy low, sell high”. If it was easy everyone would do it, right?   For financial and psychological reasons it may be hard to sell a stock in the first place. Therefore, a psychological trick I like to use is to not track the stock anymore after I sold it. If it continues to rise, I won’t be mad at myself for selling it. If it falls, I would have made the right decision, even though I’m no longer monitoring it.      

Portfolio Composition Which Generated An Almost 19% Return

  My portfolio is roughly comprised of the following:   401k account – Vanguard index funds including small-cap, mid-cap, and international and less than 10% in bonds. These are crazy cheap to own have which is my favorite characteristic. Spouses 401k account – this holds a TRowe Price target date fund. I have to actually go in and see if other options are offered and if am able to save in fees by selecting my own allocation of funds. I’m not a fan of target date funds since I prefer to do my own allocation of funds and save in fees as a result. Traditional and Roth IRA accounts – both IRA accounts have either REITs and/or high yielding dividend securities as they are tax-sheltered. I felt like an IRA account is appropriate for these types of securities for my situation as I can avoid paying tax on the income earned….for now :-) Brokerage accounts – a collection of stocks, index funds and ETFs in multiple industries with a heavy weighting in technology and consumer cyclical. I have this weighting because I am most likely an end-user of the products offered by these companies. For example, I own Proctor and Gamble (PG). Their brands include Crest, Gillette, and Pampers among many others. These are brands that we have been purchasing for years and thus are satisfied with the quality of the products. Their long history and continuous increase in dividend provide comfort to me as an investor. Kid’s 529 account – this is a target date TRowe Price fund based on the estimated date our son is expected to start college. I really don’t count this as my portfolio as the funds are earmarked for the specific purpose of college education. Cash balance – this is a safety net due to an emergency (e.g. loss of job or accident). Also, it is a buffer for a possible future value investment opportunity when one arises.    

Where Did I Do Well?

  Overall in the core stock market with companies that are continuing to rise such as such as AMZN and NOC, I’ve done alright. From my minuscule stake in these two stocks, I’ve benefitted from a gain of more than 49% from AMZN and about 24% from NOC as compared with the S&P:  

        Extracted From Google Finance  

Where Can I Improve?

  As I mentioned earlier, my spouse’s 401k is a target date fund. I can and plan to go into the account and see what changes can be made to maintain or improve diversification and reduce fees. Over time, fees can eat up returns and as the balance increases so do the number in fees. With so many low-cost options of funds out there that are performing well as compared to their high-fee counterparts; it just doesn’t make sense to continue to pay for under-performance.   I believe I can also improve by diversifying into small-cap index funds. For example, Vanguard’s small-cap ETF (VB) doesn’t have a minimum investment amount since it’s an ETF. The fund did not beat the S&P 500 index; however, at a glance, it’s attractive due to the following:   The fee is super-low at 0.06% and the average annual 10-year return is 9.68%.   It will allow me to further diversify, seek long-term growth via the growth industry and benefit from low-fees in my after-tax account.   It does pay a decent dividend, most recently at .775 per share with the dividend yield averaged out to 2.03%. I try to place the higher income generating investments into an IRA or Roth account anyway for the tax savings.       Have you measured your accounts with a benchmark for the past year? If so, how did you do? How do you usually assess your financial investments to see what can be improved or optimized? Please share your thoughts below.       _________________________________________________________________________

I use  because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!   Read the full article

[simplemoneyman-blog]

Almost Beat The S&P 500 Index

  If you continued to ride the market and in the process acquired some more investments in stocks or ETFs, chances are you’ve done well in 2017. But how do you how well your investments are doing or if they could or should be doing better? That’s where benchmarks come into the picture.   It’s nice to see that your investments are experiencing gains. At the same time, a benchmark should be used to determine if the gains are appropriate. For many of us, the benchmark is usually the S&P 500 index or the Dow Jones Industrial Average.   The past year, I almost beat the S&P 500. This is based on the data provided by Personal Capital – one of my favorite personal finance tools.

  As you can see, I finished 2017 with 18.78% and the S&P with 19.42% a difference of only.64%. I believe I could have come even closer or would have beaten the index if I didn’t sell off some stocks that were performing really well, thus licking in gains, and then rebalancing/diversifying by buying ETFs.   The stocks I sold were doing well and of course, that’s why it was hard to sell. But I decided to follow the advice of billionaire Warren Buffet – “buy low, sell high”. If it was easy everyone would do it, right?   For financial and psychological reasons it may be hard to sell a stock in the first place. Therefore, a psychological trick I like to use is to not track the stock anymore after I sold it. If it continues to rise, I won’t be mad at myself for selling it. If it falls, I would have made the right decision, even though I’m no longer monitoring it.      

Portfolio Composition Which Generated An Almost 19% Return

  My portfolio is roughly comprised of the following:   401k account – Vanguard index funds including small-cap, mid-cap, and international and less than 10% in bonds. These are crazy cheap to own have which is my favorite characteristic. Spouses 401k account – this holds a TRowe Price target date fund. I have to actually go in and see if other options are offered and if am able to save in fees by selecting my own allocation of funds. I’m not a fan of target date funds since I prefer to do my own allocation of funds and save in fees as a result. Traditional and Roth IRA accounts – both IRA accounts have either REITs and/or high yielding dividend securities as they are tax-sheltered. I felt like an IRA account is appropriate for these types of securities for my situation as I can avoid paying tax on the income earned….for now :-) Brokerage accounts – a collection of stocks, index funds and ETFs in multiple industries with a heavy weighting in technology and consumer cyclical. I have this weighting because I am most likely an end-user of the products offered by these companies. For example, I own Proctor and Gamble (PG). Their brands include Crest, Gillette, and Pampers among many others. These are brands that we have been purchasing for years and thus are satisfied with the quality of the products. Their long history and continuous increase in dividend provide comfort to me as an investor. Kid’s 529 account – this is a target date TRowe Price fund based on the estimated date our son is expected to start college. I really don’t count this as my portfolio as the funds are earmarked for the specific purpose of college education. Cash balance – this is a safety net due to an emergency (e.g. loss of job or accident). Also, it is a buffer for a possible future value investment opportunity when one arises.    

Where Did I Do Well?

  Overall in the core stock market with companies that are continuing to rise such as such as AMZN and NOC, I’ve done alright. From my minuscule stake in these two stocks, I’ve benefitted from a gain of more than 49% from AMZN and about 24% from NOC as compared with the S&P:  

        Extracted From Google Finance  

Where Can I Improve?

  As I mentioned earlier, my spouse’s 401k is a target date fund. I can and plan to go into the account and see what changes can be made to maintain or improve diversification and reduce fees. Over time, fees can eat up returns and as the balance increases so do the number in fees. With so many low-cost options of funds out there that are performing well as compared to their high-fee counterparts; it just doesn’t make sense to continue to pay for under-performance.   I believe I can also improve by diversifying into small-cap index funds. For example, Vanguard’s small-cap ETF (VB) doesn’t have a minimum investment amount since it’s an ETF. The fund did not beat the S&P 500 index; however, at a glance, it’s attractive due to the following:   The fee is super-low at 0.06% and the average annual 10-year return is 9.68%.   It will allow me to further diversify, seek long-term growth via the growth industry and benefit from low-fees in my after-tax account.   It does pay a decent dividend, most recently at .775 per share with the dividend yield averaged out to 2.03%. I try to place the higher income generating investments into an IRA or Roth account anyway for the tax savings.       Have you measured your accounts with a benchmark for the past year? If so, how did you do? How do you usually assess your financial investments to see what can be improved or optimized? Please share your thoughts below.       _________________________________________________________________________

I use  because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!   Read the full article