What is the best way to execute my new AAP

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nand
Posts: 447
Joined: Thu Jan 25, 2007 6:38 am

What is the best way to execute my new AAP

Post by nand »

My investments were all over the place all these years. plenty of individual stocks, bonds, CD's, india FD's etc etc. with no AAP in sight. Thanks to this sight and thanks to a few articles like Scott Burns margaritaville portfolio of vanguard funds, I am moving to a more structured AAP. I have liquid, CD, cash sitting in bank as well as ill advised stock holdings like that are underperforming, that I need to move in to the AAP structure that I have decided for myself. My question is, how do I do this:

If say for simplicity my AAP is VTSMX:VVBMFX 60:40, and say hypothetically I have 200K in cash to move into this allocation:

1. Do I do it in one fell swoop, that is tomorrow put 120K in VTSMX and 80 in VBMFX?
2. Do I do it in installments over the next 10 months so if the market keeps falling I get to buy more?
3. If 2 is the better approach, what is an optimal number of installment buys?
4. Do I buy the funds or the equivalent ETF's? The ETF's have lower expense ratio and these are one time moves/adjustments, so my guess is this is marginally cheaper in case of not DCA'ing? What am i missing here?
5. I have some stock investments that dont line up to my AAP, do I wait to liquidate them and move into my AAP right away or wait to let the market move up. It can be a waiting game there.
6. Do note that this money is for the long term. Do not anticipate touching it for the next 20-25 yrs. Assume it is a reasonably large sum say 2-300K. What would you do?

Especially awaiting Desi's response as he has advised on many AAP's. My question is about how to execute the AAP change. I think these questions will be relevant to anyone taking a look at their AAP or creating one.

please comment.
nand
Posts: 447
Joined: Thu Jan 25, 2007 6:38 am

What is the best way to execute my new AAP

Post by nand »

can anybody help me? I am R2I'ing in a few days. This will be helpful. Desi, Bobus, KRV and other experts kindly comment. much appreciated.
vinod
Posts: 53
Joined: Tue Jan 16, 2007 5:01 am

What is the best way to execute my new AAP

Post by vinod »

1, 2) For purely behavioral reasons you would want to invest gradually.
3) No right answer. If past offers some guide to future, you would want to do it over a 6 month period based on William Bernstien analysis. But if this is a significant chunk of your net worth, then you may want to prolong it longer say over a 12-18 month period. You may want to start with say 25% in lump sum to begin with and then the remaining spread out.
4) ETF's are slightly lower cost, but it is not a really big deal. Remember that when you withdraw in small amounts later, if you use ETF's you would be paying a lot in commissions.
5) Depends on the kinds of stock you have, the gains you may have on those, any tax loss opportunities, the risk of each of these stocks, the relative size of these investments, etc. Better consult a financial planner. If you have significant amount, it might be worth it, if you go with a fee only planner.

Vinod
nand
Posts: 447
Joined: Thu Jan 25, 2007 6:38 am

What is the best way to execute my new AAP

Post by nand »

Vinod - thanks for your advice. As you suggested, I will invest 20-25% in one lump sum as I see a day when the market dips (we are having a few of those lately!!). Then I will DCA in over the next 12 months into my allocation. With the recession on the timing is good for this. Also I will wait on the stock holdings. Now it is too low. thanks
ILuvHyd
Posts: 1222
Joined: Sat Dec 01, 2007 1:24 am

What is the best way to execute my new AAP

Post by ILuvHyd »

Nand,

With sizable sum of 200-300K, aren't we better of buying and maintaining individual stocks with enough diversification? I myself will be in a similar situation by next year and planning on it. I would probably have around 400K-450K by Feb09 (My R2I date) and am planning to buy around 30 diversified stocks using a brokerage account (Eg. Etrade etc) and keeping them for long term. The reason I pick 30 is becasue I read that statistically it provides enough diversification if picked randomly. I don't want to invest this big sum in mutual fund or ETF as I think I have economies of scale to maintain my own diversified portfolio without paying yearly fees/expense ratio eetc. Also I will be the master of my own portfolio and won't be affected by dividend distributions etc in mutual funds. I don't know if I am being naive, stupid or both.

Experts, comment if this strategy has any pitfalls and teach me a lesson if I derserve one.
layman
Posts: 3928
Joined: Tue Jan 30, 2007 10:35 am

What is the best way to execute my new AAP

Post by layman »

ILuvHyd;80070Nand,

With sizable sum of 200-300K, aren't we better of buying and maintaining individual stocks with enough diversification? I myself will be in a similar situation by next year and planning on it. I would probably have around 400K-450K by Feb09 (My R2I date) and am planning to buy around 30 diversified stocks using a brokerage account (Eg. Etrade etc) and keeping them for long term. The reason I pick 30 is becasue I read that statistically it provides enough diversification if picked randomly. I don't want to invest this big sum in mutual fund or ETF as I think I have economies of scale to maintain my own diversified portfolio without paying yearly fees/expense ratio eetc. Also I will be the master of my own portfolio and won't be affected by dividend distributions etc in mutual funds. I don't know if I am being naive, stupid or both.

Experts, comment if this strategy has any pitfalls and teach me a lesson if I derserve one.[/quote]
Do you have the time and energy to follow these 30 stocks and do periodic re-allocation of stocks in your portfolio? Even S&P modifies its 500 stock portfolio often. It is better to buy a MF that conforms to your investment objective and leave the maintenance of the stock portfolio to the expert MF managers or the index it is tracking.

When you say that you are going to maintain a portfolio of 30 stocks we have to compare you to an active fund manager. Do you have the resources they have? Will you have the research team they have? Will you have access to the research reports they have? Will you attend the quarterly conferences of these companies? Will you have the ability to meet personally the executives in these companies?
ILuvHyd
Posts: 1222
Joined: Sat Dec 01, 2007 1:24 am

What is the best way to execute my new AAP

Post by ILuvHyd »

layman;80079Do you have the time and energy to follow these 30 stocks and do periodic re-allocation of stocks in your portfolio? Even S&P modifies its 500 stock portfolio often. It is better to buy a MF that conforms to your investment objective and leave the maintenance of the stock portfolio to the expert MF managers or the index it is tracking.

When you say that you are going to maintain a portfolio of 30 stocks we have to compare you to an active fund manager. Do you have the resources they have? Will you have the research team they have? Will you have access to the research reports they have? Will you attend the quarterly conferences of these companies? Will you have the ability to meet personally the executives in these companies?[/quote]
Thanks for the clarification/education layman. By buying and leaving 30 stocks for long term untouched, I naively thought I would achieve the same benefits of a passively managed index fund without its hassles.
MrLong
Posts: 498
Joined: Sat Mar 17, 2007 4:33 am

What is the best way to execute my new AAP

Post by MrLong »

ILuvHyd;80087Thanks for the clarification/education layman. By buying and leaving 30 stocks for long term untouched, I naively thought I would achieve the same benefits of a passively managed index fund without its hassles.[/quote]

ILuvHyd,

If you are venturing on your own, you might want to try this suggestion offered by this website for a 25 % of your portfolio amount...

http://www.magicformulainvesting.com/


I came across this, because there was a write-up about this in the latest Kiplinger magazine, and there are yahoo groups dedicated to this method of investing.
nand
Posts: 447
Joined: Thu Jan 25, 2007 6:38 am

What is the best way to execute my new AAP

Post by nand »

1. 30 stocks is not enough diversification
2. I am a subscriber to the theory of index investing. Basically that the markets are efficient, and the indexes go up in the long run.
3. I will have a portion allocated in my AAP towards individual stocks that I will play with
4. I think my question in this thread is how to change my holdings to enter into the AAP from a timing perspective. Whether to buy 100K of VTSMX tomorrow or not. My question is not whether it is better to buy ETF or index fund or stock. That is another question maybe for a different thread.

ILuvHyd;80070Nand,

With sizable sum of 200-300K, aren't we better of buying and maintaining individual stocks with enough diversification? I myself will be in a similar situation by next year and planning on it. I would probably have around 400K-450K by Feb09 (My R2I date) and am planning to buy around 30 diversified stocks using a brokerage account (Eg. Etrade etc) and keeping them for long term. The reason I pick 30 is becasue I read that statistically it provides enough diversification if picked randomly. I don't want to invest this big sum in mutual fund or ETF as I think I have economies of scale to maintain my own diversified portfolio without paying yearly fees/expense ratio eetc. Also I will be the master of my own portfolio and won't be affected by dividend distributions etc in mutual funds. I don't know if I am being naive, stupid or both.

Experts, comment if this strategy has any pitfalls and teach me a lesson if I derserve one.[/quote]
ILuvHyd
Posts: 1222
Joined: Sat Dec 01, 2007 1:24 am

What is the best way to execute my new AAP

Post by ILuvHyd »

nand;801641. 30 stocks is not enough diversification
2. I am a subscriber to the theory of index investing. Basically that the markets are efficient, and the indexes go up in the long run.
3. I will have a portion allocated in my AAP towards individual stocks that I will play with
4. I think my question in this thread is how to change my holdings to enter into the AAP from a timing perspective. Whether to buy 100K of VTSMX tomorrow or not. My question is not whether it is better to buy ETF or index fund or stock. That is another question maybe for a different thread.[/quote]
Thanks Nand. With the major indices close to their 52 week lows, I would invest all my money now rather than wait/gradual/staggered approach.
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