What Would I Do With 500,000 Dollars

We know a lot of you who read this do not have the time or the interest or the desire to spend as much time reading the market as we might. Quite honestly, we do not too many professionals in the industry that spend as much time as we do. (Really, they have told me as much.)

We really do love doing the homework. Last night after we finished the blog, for fun we went back to the first 5 trades of this month and did forensics on the buys and sells we made. We printed out charts for the life of the trades, penciled in out entry points and exits, and calculated our gains (or losses) and then looked at the news of the day for those entry and exit points to see what we could learn for next trade executions. Sad, I know.

So let's pretend I am not me. Let's say I have a retirement fund of say $500,000 and I am recently retired or about to be retired. If I am a normal person, I either have that money in a self directed 401K or in some kind of IRA plan. Most likely the monies are in Mutual Funds. If you have been reading this blog for a while, you know we do not like mutual funds. However if you do not have the interest or desire or time to do the necessary homework, we understand your choice to use mutual funds. After all, I am not a professional. We like ETFs better than MFs. (Just think about the fee structure for one second if your advisor and the MF is taking 1.5-3% off the top, well in this market that could be all the profit you make in the course of a year. We know we are busting our butts trying to beat a market that is flat on the year.)

You may say, I have no control over where my money goes because it is in a Mutual Fund. Pedro Crap! This is your money! You have all the control in the world over your funds. There are a gazillion93 funds to choose from. I know because I have counted them. You can choose a fund that is 100% cash with 100% no return. Well ok you might get .00034% return and after fees you are down about 1.7%. (Did I mention I do not like MFs.) You can choose a fund that specializes in companies that refine guano (Bird Dung) and sell it to alternative energy companies and they might show a return of 327% if you want to risk it all.) Literally you can find all kinds of funds.

If you think a MF means that it has a lots of stocks in the fund you are wrong. If you are stuck in a fund that is too heavy in stocks with all the volatility that is permeating this market, get out and find a fund that is more bond based or treasury based. How do you do it? Use Morningstar.com. Their fund screen is the best on the market. They have all the details on more than 2,000 funds in 60 categories. There is no excuse to have a fund shoved down your throat by an FA unless if you have checked that fund on Morningstar and like it.

Now you might be saying "I don't know what to look for." We would disagree. Here are few things you know. The US Government has been on a cash printing binge for two years. You know the house of cards in Europe is about to fall or at least has most people convinced the house of cards will fall. You know, because they told us last night, the US will allow a triggering mechanism go into affect that will trim 1.2 tillion in expenses from our budget. You know the world is concerned about a recession next year. You know that corporate earnings are doing well (Admittedly not as nice as the last two quarters, but still strong.) You know that corporate coffers are full. (Global public companies are holding and estimated 2.5-4 Trillion in cash on their balance sheets.)

With all of that knowledge you can make some really intelligent decisions. Look at the funds in your 401K or IRA. Look them up in Morningstar and see what you got. It is easy and enlightening.

Let's say somewhere along the line your FA or 401 Plan advisor talked you into some small growth fund. (That means these are small companies with a small market captializaition-think outstanding shares times price of less than 500 million dollars-and are growing their revenues and or their profits) Let's say that fund was MBRSX (Ok you can play along with me if you want just go to Morningstar.com). just enter MBRSX into the Quote Box at the top of the page. I'll bet you have money if funds and you don't even know what they are. Well now you will. NO MORE EXCUSES.

MBRSX is put out by Essex and is a small micro cap fund. Take a quick look at the performance table and you will see that they are underperforming the market YTD. -15.43 vs

-12.04. Now let's take quick easy look at the asset allocation. (What does your money buy?)

You can see from the chart I stole, this fund is 90% US stocks. (We know from the category they are micro cap stocks. You can verify this by clicking on the portfolio tab and then clicking on the holdings tab. I just did and can say out of the 40 or so stocks listed, I did not know any of these. Now keep in mind when you have no life and enough time, using this kind of page and doing the REAL homework on the fund holdings might turn up a diamond or two.)

Now from all you said we know from up above (cash being printed the eurozone crazies etc) do you want to have a fund that is 90% micro cap equities. Heck No. You probably want to consider shifting your portfolios into some nice balanced high yielding stock/bond portfolios. Use the Morningstar screener to find them.

A quick screen shows you 625 funds that are balanced (between stocks and bonds) and are conservative in nature. That means they won't go up as much as the market in good times, but typically they won't go down as much of the market in bad times. Let's be really simple and use the Morningstar rating system. The First 4 star rating you get to is AOCIX American Century One Choice Cnsrv Inv. What does the asset allocation look like?   

 Hey that is nice and balanced. If you like what you see, call your FA and say hey I want to get out of MBRSX and move those fund to AOCIX. Can you do it? They better have a really good reason why or we would suggest you start shopping for a new FA.

If you are not interested in doing the kind of homework to beat the market on stocks, at least do some basic homework on the funds you have. Make sure they match up with your needs and what you know about the world economy and your risk tolerance.

Remember this is your money and tuning up you portfolio, even a fund based portfolio is your job. No one else is going to do it. It is easy. You should consider putting on your calendar everything 3 months. Our recommendations would be about two weeks before Alcoa announces their quarterly earnings. Alco kicks off the earnings season so you have a good chance of seeing what the previous earning seasons have done to you funds.

I really hope this helps and we offer to kick the tires on any fund you might have monies in as long as I can use it for fodder here in the blog. If you have any questions, don't hesitate to ask.