"Youth is wasted on the young."
It's an old adage, and it's so very true. At the ages when we can take the greatest risk, we feel the most insecure. At least, in terms of finances. Therefore, next year, for the first time in my life, I am going to trust the words of the media, or at least, let a financial advisor guide me in my upcoming fiscal year. Of course, I'm talking about Mo Ansari (president of Compaq Asset Management) whose radio show I listen to most evenings on KFNN 1510, Radio That Makes You Money.
Honestly, there's another caveat fueling my decision as well. I want to introduce an actively managed fund into my portfolio, also for the first time in my life. Two years ago, I introduced the Vanguard Total Bond Market Index fund to provide a stronger hedge against stocks. For the past several months, and every time I listen to Market Wrap nowadays, Mo Anasari is warning investors that the bond market is doomed for a retreat due to overcrowding, comparing it to the tech stocks of 2000 and the real estate market of 2006. Granted, if you want to get someone's attention, those two events are how to do it, so he may just have a flair for drama, but I respect his opinion, and the only way I will be able to track his word is if I put it into active practice.
In fairness, it is not just Mo Ansari advising against the bond markets. Even Vanguard.com, which provides my 401(k) has an article entitled "Vanguard's investment chief cautions bond investors." Inside is an interview with Chief Investment Officer Gus Sauter who notes, "I'm increasingly worried that people aren't aware of the risks in the bond market. (New bonds) have very low interest rate levels. But at some point, the economy will strengthen and those interest rates will rebound. Investors who have pushed out further on the yield curve by investing in longer-term bonds will then see a greater decline in the principal value of their investments."
Therefore, in 2011, I am going to direct no new money into bonds. Keep in mind, my allocation into the bond market won't change at all, just the new money is going to be directed 100% into the stock markets, so when I rebalance quarterly, there will be bigger moves than $200 here to there like I saw this past year.
The active fund that I am introducing is the Vanguard PRIMECAP Fund (Fund #59). Unfortunately for individual investors who may be interested in the fund, this is a closed fund. The only new money coming into this fund is through a Vanguard 401(k), which I have through work so I am able to invest money there.
Mo Ansari always discusses the importance of having an "exit strategy" in place when introducing a new fund. At this point, I am looking for this fund to take the place of half my large stock money, so whereas I have a portion in international stocks, a portion in aggressive stocks, and a portion in large stocks, I will now have portions in international stocks, aggressive stocks, indexed large stocks, and active large stocks. As I age and grow more conservative, my balance in aggressive stocks will dwindle first. If all goes well, then I would keep this new fund in balance with the index fund. If its performance consistently under-performs the index fund for two straight years, then I will move out of the fund.
Unlike two years ago when I directed only new money into the Vanguard Total Bond Market Index fund, I am going to boost this one by moving some money into the new fund. The overall focus is on my asset allocation, which currently looks like this:
Fund # - Real / Current / Target
Fund 24 - 25% / 25% / 25%
Fund 29 - 5% / 5% / 5%
Fund 84 - 10% / 10% / 10%
Fund 85 - 50% / 50% / 50%
Fund 113 - 10% / 10% / 10%
What I am looking to do is change it to look like this:
Fund # - Real / Current / Target
Fund 24 - 25% / 10% / 25%
Fund 29 - 5% / 0% / 5%
Fund 59 - 0% / 50% / 25%
Fund 84 - 10% / 0% / 10%
Fund 85 - 50% / 35% / 25%
Fund 113 - 10% / 5% / 10%
Keep in mind, I am not abandoning my own instincts either. Another popular market right now is the gold market, and in my personal opinion, I would compare this market to the tech stocks of 2000 and the real estate market of 2006. I think the investors in those notorious pitfalls are looking more towards gold than they are to bonds. I have the option to invest in the Precious Metals & Mining fund, but I am going to shy away from it. Although my brother-in-law noted that his father has been encouraging him to invest in that market, and Mo Ansari has been presenting both sides of the story, so hopefully, that market will either boom or peter in the next year. But I'm expecting it to tank just based on the personality of the investors I believe getting into that market right now.
This is my overview for 2011. I am passively retreating from bonds in the short term but I am retaining them in my asset allocation, and I am actively introducing actively-managed funds in hopes that they can outpace the markets most years.
DISCLAIMER: I am neither licensed nor permitted to give specific financial advice, so if you want investment recommendations, then please consult with a financial advisor or reputable financial sources; my favorite website is CNNFN.com and my favorite radio station is KFNN 1510 AM "Radio That Makes You Money." Additional information and financial tools can be found at Vanguard.com. The investment decisions presented above were tailored to my risk tolerance and my financial goals.
