Friday, April 29, 2011

Nest Egg Report

We received our quarterly report from Investors Solutions yesterday. We started with this firm on November 4, 2007. The volatile way that the markets had performed that year eroded my confidence in my ability to do my own investing, although at that point the market had not hurt me. Furthermore, during the summer of 2007, our stockbroker had telephoned me with assurances that his firm had not been involved in any of the financial shenanigans that were beginning to shake the big financial institutions. I learned in the fall that his own firm had been lying to him. (His firm by the end of the year was taken over by one of the big banks.) To make a long story short, the Investor Solutions approach - wide diversification, disciplined allocation strategies, and the use of low cost index funds and ETFs - seemed the right thing to do. And one of my friends, Rob Gordon, had just begun with that firm as an adviser, and so we started and gratefully continue with him.

Our net internal rate of return (on an annual basis) from November 4,2007 through March 31, 2011, after everything that has happened during that period, is 3.72%. The actual net, internal rate of return since inception is 13.22%. I am well satisfied with that.

Our allocation to stocks is significant, and of course the portfolio was hit hard during the stock market bust. But when my friends in a panic were selling their stocks at the bottom of the market, we began to buy stocks, so that we would maintain our allocation to that sector. Who knows what the future will bring? But that discipline worked well, I see no reason to abandon it and every reason to continue to embrace it.

Here's our "target" asset allocation plan:

Small Cap 4.8%
Small Cap Value 7.2%
Large Cap 4.8%
Large Cap Value 7.2%
Int'l Small Cap 4.5%
Int'l Small Cap Value 5.4%
Int'l Large Cap Value 5.4%
Emerging Markets 4.2%

Domestic Real Estate 4.5%
Int'l Real Estate: 4.5%

Commodities 3.0%

Bonds 40%
Cash & Equivalents 0

Because of the way that the markets have moved, we are overweighted right now in every sector but bonds. (For example, in Small Cap Value, the present position is 10.2% and, interestingly, Domestic Real Estate is at 6.1%. On the other hand, Bonds are at 28.1%) At some point, Investors Solutions will "rebalance," to bring the portfolio back to target. Rebalancing is a crucial part of the discipline. However, there are transaction costs when one rebalances, so there is also a discipline regarding just when we rebalance.

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