I found following document in my backup CD. I wonder how valid the ideas are today, after 15 years.
My investment strategy as on 03/12/99
Rules Of the game: (based on book by Jonathan Clements)
1. Invest as much in stocks as you can.
2. Aim to put together a diversified stock fund portfolio, by buying both index funds and actively managed funds.
3. Consider indexing between 30% and 50% of your stock fund portfolio. Make sure you index both the whole US market & foreign markets.
4. Among actively managed funds, make sure you own at least five stock funds representing each of the five different investment styles: small-company growth, small-company value, large-company growth, large-company value, and international.
5. Establish target portfolio weightings for each of the five investment styles. At the end of every year, figure out what percentage of your stock fund portfolio is invested in each of the funds you own. Then use additional investments over the next 12 months to get your portfolio weightings back to the target percentages.
6. Avoid buying funds that don't fit into a diversified portfolio. In particular, don't buy asset allocation, balanced, sector and global funds. Remember: Global funds "include" US and foreign stocks, while international funds invest exclusively abroad, so you get pure foreign stock exposure only with an international fund.
7. Avoid buying too many funds; only investors with large portfolio should own more than a dozen funds.
8. Watch costs carefully. Be leery of stock funds that levy a sales commission, that have annual turnover above 200%, and that charge annual expenses of more than 1.5%. With international stock funds and small-cap stock funds, be leery of those with expenses that exceed 2%
9. Favor stock funds with strong five-year results, but don't rule out funds with shorter track records.
10. Check a stock fund's year-by-year performance record. Avoid those funds whose long-term records are built on just one or two years of fabulous performance.
11. Make sure the fund manager responsible for a fund's record hasn't jumped ship.
12. Be leery of small-company stock funds with more than $300 million is assets and large-company stock funds with more than $3 billion in assets.
13. Never buy a closed-end fund unless it is at a discount of at least 10%, and always sell if it moves to a slight discount or a premium. When buying a closed-end funds, be careful not to let trading costs wipe out your returns.
14. With your retirement portfolio, start moving into bond funds when you are ten years from retirement, but don't abandon stock funds entirely. With your child's college money, begin the move to bonds when your child is five years from college.
15. If you keep a pool of emergency money, use a money market fund, a short-term bond market fund, or an adjustable rate mortagage fund. Never use a stock fund.
16. With bond funds, never pay a sales commision and always try to invest in the funds with the lowest expenses.
17. Never buy a bond fund based on its yield; instead, base your selection on each fund's total return.
18. Make full use of your IRA and your company's 401(k) plan or profit-sharing plan.
19. Use dollar cost averaging.
1. Do NOT try to beat the market.
2. Invest for future (retirement) and for long term > 10 years.
3. Invest periodically, typically every month.
4. Do not pay any sales load or 12b-1 fees
5. Annual expenses < 1% for index funds & 1-1.5% for actively managed funds
6. Decide a portfolio & re-evaluate it every 6 months.
7. Avoid funds with track record < 3 years. Be cautious for track record < 5 years.
8. Do NOT invest in options or closed-end funds.
9. Invest in DRIP/DSP accounts.
1. If it's a taxable account, go for GROWTH (less distribution)
if it's a retirement account, go for value (more distribution)
2. If it's a taxable account, go for Index fund
(less distribution & less management fee)
If it's a retirement account, can go for actively managed fund with <1% fee
My Portfolio (Projected)
20% large-cap growth
20% large-cap value
15% small-cap growth
15% small-cap value
25% International large-cap
5% International small-cap (i.e.emerging market)
Growth Vs Value:
GROWTH: less dividend but growth potential (maybe high P/E)
Good for taxable account since distribution may be less
Normally owns small-cap companies
VALUE: more dividend but cheap stocks (low P/E)
Good for retirement account since distribution may be more.
Normally owns large-cap companies
Things to consider "before" selecting a fund
1. Does the fund charge a sales commission? 12b-1 fees?
2. What are the fund's annual expenses?
3. Who is the fund manager & since when?
4. How much buying & selling of stocks does the fund manager do?
5. What is the fund's minimum initial investment?
6. How much money does the fund manage?
7. What is the fund's investment style?
8. What is the distribution of capital gains/dividend?
9. How has the fund performed over the past 3,5, and 10 years?
10.How has the fund performed in "each" of the last 10 calendar years?