Friday, November 2, 2007

Process Overview and Asset Allocation

Note: Much of this post is obsolete. I no longer allocate based on the investment targets as described below.

I am a process oriented investor. By process oriented I am referring to a defined system that I follow when investing - to the point it is nearly mechanical. That's not to say it is rigid; it is constantly evolving and changing as I learn.

At the foundation of my investing process are active investment types and target allocations (see chart). Active investment types are investment vehicles that I contribute to on a monthly basis outside of my retirement accounts [401(k), IRA, etc.] Each of the three investment types are described below:

Mutual Funds
I currently own two mutual funds:
  1. An S&P Index Fund that I haven't made a contribution to since December 2004. This fund is used to benchmark all my other investments.
  2. An actively managed large cap blend fund. This fund, more often than not, beats the aforementioned S&P Index Fund. Its life-to-date annualized return is usually in the 11%-14% range.
As noted in the chart above, my target % for Mutual Funds is one-third (33%) of my active investments. The goal of this portion of my investments is to beat the market averages by utilizing professionals. I am comfortable with the Mutual Fund's performance and it is currently on auto-pilot, so I don't anticipate spending any time discussing it.

Indexed ETFs (Exchange Traded Funds)
This third (33%) of my active investment is divided into the following two segments evenly split at 16.5% each:
  1. Asset Allocation ETFs: This strategy is based on an article by Richard Jenkins on MSN Money titled "A simple ETF strategy for beginning investors". Don't let the "beginning investors" term scare you away. I have found this strategy to be very effective. The goal of this portion of my investments is to provide diversification over a broad allocation of stocks. Since these investments are mechanical, I don't anticipate spending any time discussing them.
  2. Dividend / Income ETFs: The goal of this portion of my investments is to provide a growing dividend income with lower risk than owning individual stocks. I am still tinkering with this portion of my investments, as such, I anticipate spending some time discussing it.
Dividend Stocks
The final third (33%) of my active investments is dedicated to dividend / income producing stocks. This portion of my investments will be the primary focus of this site as I try to refine the analytical process used to identify worthy investments.

I look forward to the journey and invite you to come along with me!

Related Posts
- Dividend Stocks vs. a Safe Distribution Rate
- Best Stocks for 2011
- The 2011 Dividend Aristocrats
- 13 Dividend Stocks With A Good Yield/Growth Mix
- 11 Higher-Quality, High-Yield Dividend Stocks
(Photo Credit)