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June 26, 2006

Acid test for investors

Filed under: Investing — indexfundfan @ 12:58 pm

The recent ‘small’ correction in the equities market is a good acid test on the suitability of an investor’s investment plan. Which of the following options did you take in June?

  • a) I have trouble sleeping and cannot stand my portfolio’s volatility. I sold out all my equity funds for cash. Being able to sleep is more important to me and I consider the loss a small price to pay for my lesson.
  • b) I am very excited with the sale in the equities market and invested a lot more! My original equity to fixed income target was 70% : 30%. Now it has become 75% : 25%.
  • c) I stuck to my plan. I re-balanced out of fixed income to equity but only to the extend as to keep my equity to fixed income ratio consistent with my investment plan.

If you choose a), it is a sign that your original investment plan was way too aggressive, and if you have chosen b), you probably have a risk appetite that is greater than what you have chosen for your original investment plan (rare case I would say).

But, if you have stuck to your plan, I would say congratulations to you for a well-formulated investment plan and good financial discipline!


June 24, 2006

Gold Miners ETF

Filed under: Investing — indexfundfan @ 6:01 pm

I have been watching the Gold Miners ETF (GDX, ER 0.55%) with interest since it started trading a few weeks ago. It appears to track fairly closely with the Vanguard Precious Metals and Mining fund (VGPMX, ER 0.4%) and has a respectable trading volume.

I think this would be a good substitute fund in a taxable account for the VGPMX fund in my tax-deferred account. It could also be used for tax harvesting purposes — if there is another huge run-up in precious metal equity, I would sell off some of my VGPMX allocation in my tax-deferred account and purchase the equivalent amount of GDX in my taxable account. Later, if/when this sector corrects, I would then be able to sell off GDX at a loss, harvesting a tax benefit, and at the same time purchase back VGPMX in the tax-deferred account.

Hmm, sounds like a plan…

International Real Estate added

Filed under: My Portfolio — indexfundfan @ 5:29 pm

I added international REITs into my portfolio in June 2006. Several articles have mentioned the added diversification benefits of having international REITs as opposed to just having domestic REITs. A recent post on the Diehards forum also discussed this. In addition, it appears that there are certain tax advantages to holding international REITs in a taxable account (due to the foreign-tax credit).

There are not many international real estate funds to choose from, and there is none from Vanguard. The fund I selected was the Alpine International Real Estate equity fund (EGLRX). This fund has about 40% allocation in Europe, 30% in Asia, 28% in North America and 2% in Latin America. The expense ratio of this fund is 1.18%.

Currently, I am targetting this fund to have a 1:3 ratio of my overall REIT allocation, i.e. 1 part of international REIT (ELGRX) to 3 parts of domestic REIT (VGSIX). The new allocation will be reached by re-allocating my VGSIX assets to EGLRX in the next few months.

WisdomTree International Small Cap ETF

Filed under: Investing — indexfundfan @ 5:11 pm

The WisdomTree International SmallCap ETF (DLS) has started trading. Since Vanguard’s international smallcap fund (VINEX) is currently closed, this might be a viable international smallcap option. However, the trading volume is currently very low. Here is the related Vanguard Diehard discussion.

June 1, 2006

Portfolio return for May 2006

Filed under: My Portfolio — indexfundfan @ 1:05 pm

Stocks are on sale! Emerging markets equities had quite a tumble in May. In accordance with my investment allocation plan, more money was rebalanced into emerging market equities.

The portfolio return of -3.31% in May lags the benchmark of -2.51%, but on the YTD basis, is still ahead of the benchmark.

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