Investing in foreign equities

Thursday, August 27, 2009 |

Do you invest in foreign stocks?  If you do, what is the percentage of your equities are in foreign stocks?  As I mentioned on Managing My Asset Allocation between Different Accounts post, foreign/international stocks account for 40% of my equities part of my portfolio.

Walter Updegrave, editor for Money Magazine, discussed about Dipping your toe into international waters on Money Magazine Ask the Expert column.  One of the reason for investing in foreign stocks is diversification.  While there is certainly correlation between international stocks and U.S. stocks, it is still different enough.  You also get currency diversification by investing in foreign equities. As you can see, the U.S. dollar over the past four or five years has seen declined when compared to currently such as Euro.  Thus the money invested in international stocks has seen some rises due to the rise in the value of Euro when compared to U.S. dollar.

Walter Updegrave also pointed out that U.S. stock market accounts for only 30% to 40% of global stock values.  That shows huge numbers of opportunity.  Also, there are likely more growth on those places, especially in emerging markets.  Those economies should have more upside than U.S. economies.  Of course it may come with more risks and more volatility, but I think with proper diversification and limited portion of your investments in riskier emerging markets and more toward developed market, you can manage those risks.

How should the money invested in foreign stocks?  Well, I am not financial advisors and not qualified to give advises, but I can share with you what I did.  I invest mainly in index funds and that includes international equities.  I don't invest in just global funds, such as Vanguard Total International Funds.  I think to get more growth, some portion should be in emerging market, some in International small cap and value.  You can look at my target asset allocation that I posted few days ago.

Another case for index funds

Wednesday, August 26, 2009 |

This time, it is slightly different.  It is the case for bond index funds.  Here is the snippet from the article Bond Indexes Beat Active Mutual-funds:

A study by Standard & Poor's found that on an asset-weighted basis -- measuring returns by the invested dollar rather than percentage of funds -- index returns beat actively-managed fund returns in all 13 fixed-income categories over one and three years, and in 11 of 13 categories over five year

For me personally, I follow recommendation and keep my fixed income securities in short term to intermediate term Treasury bonds and also in Treasury Inflation-Protected Securities (TIPS) as I am not looking at fixed income for growth, but as a way to reduce my portfolio risks.

Things to consider when selecting 529 College Savings Plan

Tuesday, August 25, 2009 |

Since I just went through 529 College Savings Plan selection for my second daughter where I ended up selecting West Virginia Smart 529 Select, I will share several things and the process that I went through.  Note that I only discuss investment plan, not pre-paid or guaranteed saving plans.

Tax Consideration
Each state offers different tax break for 529 plan.  I live in Pennsylvania where I get tax deduction no matter which state 529 plan I selected.  In most states, you will only get tax break if you invest in your state 529 plan.  Even though there may be better plan other than your state 529 plan, the tax break offer by your state may make your state 529 plan more desirable for you. is obviously one easy way to find out the information on this.

Of course you won't be eligible for some plans simply because of residency requirement, such as Pennsylvania GSP plan which is open only to PA residents.

Review "Best 529 Plans"
There are several publications that listed their best 529 plans.  This is a quick way to limit the number of other plans you may want to review.  There are so many options out there that it will be a waste of your time to review each plan to see the advantages and disadvantages.  I listed several "Best 529 Plans" articles here.

As a fan of Vanguard, I actually limited myself somewhat to 529 plans offering Vanguard funds (with the exception of West Virginia Smart 529 Select with its DFA funds).  To find out list 529 plans offering Vanguard funds, you click here.

Funds Family
Does funds family matter to you?  It does for me.  I focus mainly on Vanguard and DFA.  I am not saying that other options are bad.  In fact there are many other good ones, such as those offering TIAA-CREF, T. Rowe Price, and others.  However, I want  either Vanguard or DFA due to my familiarity with those funds.

Funds selection
How flexible is the funds selection?  Do you have enough options?  Do you think you can create enough diversification with the options available?  Plans such as Nevada 529 College Savings plan are great since you have a lot of options, but there are minimum for each options, which make it hard to create proper diversification when your account value is low.  One thing to remember too, there is no reason to match your the asset allocation with your 529 asset allocation.  Your asset allocation for your retirement have different time horizon when compared to education savings.  In most cases, you may need the college education funds for only 4 to 5 years (ignoring graduate degree, since I think the kid should pay for that themselves) and the time to invest is around 18 years.

Fees and expense ratios
While I listed this last, I consider this as one of the most important considerations.  Check the fees and expense ratios for each plan.  For example, while Illinois Bright Start College-Savings Plan has a really low expense ratio, it has annual maintenance fees.  Thus if you are going to have a low balance, that fees will be a bigger part of your investment.  If you have higher balance, then the plan could easily become one of the cheapest.

Other considerations
There are certainly other things to consider when researching 529 plans.  One example, in Pennsylvania, the contribution by PA resident toward PA 529 plans are excluded for state financial aid consideration.

Comparison Tool
One website that I found very helpful in doing comparison can be found on Vanguard.  Vanguard has 529 Savings Plans comparison tool.  The tool is powered by Archimedes Systems, thus the website URL is at  Of course as I mentioned earlier, check out  Not only you can find detail about each plan there, there are a lot of helpful tools and articles there too.

2009 Best 529 College-Savings Plans by Several Publications

Monday, August 24, 2009 |

Update: Added more links

Recently, I just went through research of 529 plans for my second daughter. I ended up with selecting West Virginia Smart 529 Select plan. I used several online resources and direct links to each plans that I reviewed. I looked at the fees, details, funds offering, and other information for each plans. The best source to do research for 529 plan is probably

I also looked at top 529 plans selection by several publications. Here are several links to "Best 529 Plans" articles that I found.

Kiplinger - Best 529 College-Savings Plans
The best 529 college-savings plans according to Kiplinger are:

  • For low fees: Illinois Bright Start College Savings Program (Note: From all the plans I review, I agree with this. It is actually the runner-up for me personally)
  • For overall investment mix: Alaska's T Rowe Price College Savings Plan
  • For conservative investors: Michigan Education Savings Program
  • For fund choices: College Savings Plan of Nebraska
  • For adviser-sold plan: Virginia CollegeAmerica plan

The Best and Worst 529 College-Savings Plans
This article from listed the best and worst 529 plans. The best 529 college-savings plans according to are:
  • Ohio CollegeAdvantage
  • Indiana CollegeChoice 529 Direct Savings Plan
  • Utah Educational Savings Plan Trust
  • Virginia Education Savings Trust
  • Virginia CollegeAmerica 529 Savings Plan (Broker-sold)

The worst 529 college-savings plans according to are:
  • Nebraska State Farm College Savings Plan (Broker-sold)
  • New Jersey Best 529 College Savings Plan
  • Montana Pacific Life Funds 529 College Savings Plan
  • Ohio Putnam CollegeAdvantage (Broker-sold)
  • Nebraska AIM College Savings Plan (Broker-sold)

You can see a lot of broker-sold 529 plans are rated low, which I think come down to the fees.

Consumer Reports - Some of the best and worst 529 plans
Consumer Reports also has a list of best and worst 529 plans. The best 529 plans according to Consumer Reports are:
  • Georgia Path2College 529 Plan
  • College Savings Iowa
  • Illinois Bright Start College Savings Program
  • Mississippi Affordable College Savings Program
  • Colorado Direct Portfolio College Savings

The worst 529 plans according to Consumer Reports are:
  • Wisconsin Tomorrow's Scholar
  • Arkansas John Hancock Freedom 529
  • New Jersey Franklin Templeton 529 College Saving
  • Columbia New York Advisor 529 Plan
  • Nevada Columbia 529 Plan

Money Magazine - Best low-risk 529 plans
Money Magazine list is slightly different, since it is focused mainly on "low-risk 529 plans".
  • Illinois Bright Start College Savings Program
  • Ohio CollegeAdvantage Savings Plan
  • Utah Educational Savings Plan

Managing My Asset Allocation between Different Accounts

Saturday, August 22, 2009 |

In term of asset allocation, the ideal thing is to have your asset allocation from your different accounts to reflect the true asset allocation. But it is a hard thing to do when you have to deal with 401k, 403b or 457 accounts that have limited selection. This discussion is trigger by the article on - When your 401(k) plan doesn't have everything you need.

We have four different accounts where we invest our money

  • Joint Vanguard Taxable account
  • His Vanguard Roth IRA account
  • Her Vanguard Roth IRA account
  • His 457b Retirement account

I decided that I am going to look at each account separately and handle it that way. It is not ideal solution, but I think I still can get good diversification without over complicating my asset allocation. I modified slightly from suggested Vanguard Portfolio. Here is my target asset allocation for each account:

Joint Vanguard Taxable Account

FundAsset ClassPercentage
Vanguard Tax Managed G&ILCB15%
Vanguard Value IndexLCV15%
Vanguard Tax Managed Small Cap IndexSCB15%
Vanguard Small Cap Value IndexSCV15%
Vanguard Tax Managed InternationalIntl LCB10%
Vanguard International Value IndexIntl LCV10%
Vanguard FTSE All-World ex-US Small-Cap Index FundIntl SCB10%
Vanguard Emerging Markets Stock IndexEM10%

For our joint taxable account, we invest in 60% US and 40% International. Yes, for some people, this is quite a lot of international equities. suggestion is actually 50-50 US-International. I feel comfortable with 60-40 US-International split. Again, remember that I am not financial expert and I do not even consult with financial professional for this asset allocation.

His or Her Roth IRA

FundAsset ClassPercentage
Vanguard 500 IndexLCB8.40%%
Vanguard Value IndexLCV8.40%
Vanguard Small Cap IndexSCB8.40%
Vanguard Small Cap Value IndexSCV8.40%
Vanguard Developed Market IndexIntl LCB7%
Vanguard International Value IndexIntl LCV7%
Vanguard FTSE All-World ex-US Small-Cap Index FundIntl SCB7%
Vanguard Emerging Markets Stock IndexEM7%
Vanguard Short Term TreasuryBond9%
Vanguard Intermediate Term TreasuryBond15%
Vanguard TIPSBond6%

Similar to Joint Taxable Account, we have 60-40 US-International split on the equity portion. And fixed income portion of our allocation total to 30%. This may seems high for someone in early 30s, but since we don't have any bonds outside our Roth IRA, from our total investments, our bonds allocation is actually rather small, around 15%.

His 457b Account

FundAsset ClassPercentage
Stock Index FundLCB30%
Extended Market FundMCB & SCB18%
EAFE Equity Index FundIntl LCB32%
Aggregate Bond Index FundBond20%

For my 457b account, as expected, the option is limited. There are other options available, but I feel this allocations is the best for me. I could have increase my extended market fund and decrease my stock index fund, thus moving toward my preference of small cap and value fund. However, I don't feel comfortable with that option for this account and funds selection. Also, you will notice 60-40 US-International split for the equity portion.

Cut your spending

Friday, August 21, 2009 |

CNN Money listed 63 ideas to cut your spending by $500 a month. Below are the list of ideas that I think should be easy enough for everyone to do and some that I should do myself.

Step off the gas

I think I am a sensible driver. But from time to time, I still do rapid acceleration and braking. I need to be more sensible. My commute to work is only about 2 miles. I could potentially ride my bike, which I tried to do awhile ago. Unfortunately, I forgot to close my garage door one night and my bike was stolen since I didn't lock it. So know I don't have bike. Even if I have bike, my route to work is not necessary the safest route for bike rider or even pedestrian. I need to cross a bridge where there are a lot of holes on the pedestrian section. And my city is not bike friendly.

It also suggests to check the tire pressure regularly. I do that and I own a simple tire inflator that I can use when needed. I keep my trunk empty regularly, except for my wife car where we regularly carry strollers for the kids since we never know if we need it.

Another thing that I am trying to do is to keep track of gas mileage overtime by using Fuelly.

Work out for less

I no longer have gym membership and I found out that I work out more regularly without gym membership. I don't even have any machine at home. There are a lot of exercises that you can do at home without any or minimal equipments.

For cardio, I would recommend Craig Ballantyne Bodyweight Cardio Circuit. You can find out more information on Craig Ballantyne's Youtube Video here or you can visit some info from article about the bodyweight circuit here. The great thing about this is that it requires less than 30 minutes of your time.

Or you can spend some money and buy some work out DVD. I have tried Billy Blank's Bootcamp series. You can get the DVD set for less than $50. Or for slightly more money, you can tried P90X. I have heard good thing from friends that have tried P90X.

There are more resources online for workout ideas that you can do at home. Of course if your goal is to build more muscle mass, you may want to consider going to gym. And remember, I am not a fitness expert and you may want to check with your physician/doctor before starting any exercise routine.

Remember, by working out, you are potentially cutting your health care expenses too!

Stop overpaying for college savings

That is what I did by doing my exercise recently when selecting 529 plans for my second daughter. I ended up with West Virginia Smart 529 Select plan. You can read all the articles about my research on 529 plans here.

Invest for less

I am a big fan of Vanguard. I used to buy individual stocks, but it is hard to do regular investment with individual stocks since you will be paying commissions. I have since open account with Vanguard and invest certain amount monthly. Vanguard funds are known to have the lowest fees around. You can go with ETF, but as I mentioned, it is hard to do regular monthly investment due to trade commissions.

Zap your energy costs

We installed programmable thermostat two years ago and I think it is one of the best decisions. Our natural gas and electric bill (depending on the season) dropped by about 10%. (Note: Remember to recycle the mercury thermostat properly. We brought ours to our state Department of Environment Protection office) . And we dress appropriately at home according to season. We don't mind putting on sweater at home during winter time.

Almost all our light bulbs are CFLs, including bathroom globe light bulbs. They cost more, but last longer and used less electricity.

Stake out vampire appliances

This is where I really need to pay attention too. I left a lot of electronic devices plugged in even when I am not using it. I need to start paying more attention to this.

Read bargain books

We barely buy new books anymore. I use paperbackswap as my main source for reading materials. And we also have membership to library where we get most of the books for our daughters to read. My first daughter loves to go to the library and she loves to read books. That is great for 2.5 years old. I hope she will continue to love to read books.

Tip judiciously

I agree with the article here, when does 20% become the norm? I thought it used to be 15%, but I noticed that I felt as if I need to give 20% now. I will start adjusting and only give 20% when it is an exceptional service. Otherwise, I will limit it to around 15%.

There are other ideas in the article that may be easier for you to implement. The savings may seem small, but it will add up.

529 Plan Selection for My Second Daughter


It has been a few weeks that I have been researching 529 plans for my second daughter. Of course I have not been doing the research everyday. I have been quite busy lately to do it faster than I have planned. Anyway, if you want to look back at all the plans that I have reviewed so far, click here.

So far, I have looked into more detail the following 529 plans:

  • Illinois Bright Start
  • Ohio CollegeAdvantage
  • Nebraska College Savings Plan
  • Nevada Vanguard 529 College Savings Plan
  • West Virginia Smart529Select
  • Pennsylvania 529 College Savings Investment Plan

Of course there are more good 529 plans, but I am sort of limiting myself to 529 plans that offer Vanguard Funds, with the exception of DFA (Dimensional Fund Advisors) offered by West Virginia Smart 529 Select plan. If you have not heard about DFA and why I like DFA, check out this article The Best Mutual Funds: DFA or Vanguard? from

I mentioned after the review of PA 529 Plans that my top three after the review I have done are:
  • West Virginia Smart 529 Select
  • Pennsylvania 529 College Savings Investment Plan
  • Illinois Bright Start
I was contemplating of sticking to Pennsylvania 529 plan to keep it simple since I will be able to maintain only one account for both of my daughters 529 plans. But when compared to Illinois Bright Start, I really like the low expense ratios, even with $10 annual maintenance fees. My plan is to put in $500 initially and then add $100/month. After a year, the account balance should be around $1600 and the $10 annual maintenance fee charged by Illinois Bright Start will be around 0.625%. That would bring the first year expense ratios for Illinois Bright Start to be around 0.85% for me. This would be higher when compared to Pennsylvania plan.

Now, after two years, the account value should be around $2,800 (I am simply ignoring changes since I can't predict the market). The $10 annual fee make the total expense ratios for Illinois Bright Start to be around 0.58% (about 0.36% from annual fee plus around 0.22% for funds expense ratios). So after the second year, considering the expense ratios for both Pennsylvania and Illinois 529 plans do not change, Illinois Bright Start offers a better expense ratios.

However, I kept being tempted by DFA Funds offer from West Virginia. This is a great way to invest in DFA funds. Otherwise, to invest in DFA funds, I would need to go through advisors or brokers, which will charge around 1% annual fees in addition to fund expenses. The expense ratios for West Virginia Smart 529 Select is LOWER than Pennsylvania 529 plans! So I decided to cross out Pennsylvania 529 Plan after the comparison against Illinois Bright Start and West Virginia Smart 529 Select plans.

I was left to choose between Illinois Bright Start and West Virginia Smart 529 Select. So yesterday, I decided to take the plunge and open the account at West Virginia Smart 529 Select. I decided that the extra fees in the long run for West Virginia Smart 529 Select is worth it. So I went with my plan and put $500 in the initial investment.

Again, remember that I am not a financial professional and each person has different circumstances. But I think everyone should do some kind of research toward options available before deciding on the 529 plans. Don't simply go with your state 529 plans. In most cases, your state 529 plans may be the best option if you consider the tax benefit, since a lot of states offer state tax benefits only if you go with your own state 529 plans. But still, you want to look at the funds, expense ratios and other factors. I hope my learning helps other do the same thing.

529 Option: PA 529 Plans

Thursday, August 20, 2009 |

Update: I have selected West Virginia Smart 529 Select with DFA Funds. For the conclusion of my 529 series, go to 529 Plan Selection for My Second Daughter

I am continuing on my look at 529 options for my second daughter. For the other 529 plans that I am considering or at least looked at, click here.

As a resident of Pennsylvania, I don't necessary have to stick with PA 529 plans to get state tax deduction. PA is one of the few states that give tax deduction regardless of which 529 plans I choose. However, there are several advantages of investing in PA 529 plans, and one of those is the investments I have in PA 529 plans are excluded for state financial aid purposes.

PA 529 plans have been re-branded several times in the last two years. Prior to September 2007, the plan was known as TAP 529. In Sept 2007, the plans were rebranded as nowU. However, when I log on to the site a week ago to check for my first daughter investments, I noticed that they no longer call it nowU. It is simply call Pennsylvania Treasury 529 College Savings Program. The new website is now

PA 529 plans offer two different options:

Guaranteed Savings Plan (GSP).
In this plan, the investor will be buying tuition credit based on current price. Below is what is written on the website for PA GSP.

The GSP provides the advantages of 529 plans and guarantees that your savings will keep up with the rising cost of college tuition. The GSP is unique because you save for tomorrow's college expenses at today's lower rates

This is relatively good option and I was very tempted on this option. However, there is one thing that bother me. Who guaranteed the performance? I think the plan actually take the money and invest it and hoping that the investment will be able to beat tuition rate increases. And this is what you can find on the footnote:

The guarantee is that, when used for qualified higher education expenses, your contributions will grow at the rate of tuition inflation at a Tuition Level that you choose. If the applicable GSP Credit Rate at the time a contribution is made has a premium, however, your rate of growth will be lower than the actual rate of tuition inflation at your Tuition Level by approximately the rate of the premium. Premiums do not, however, alter the way in which the dollar value of your account is determined. When used for qualified higher education expenses, each GSP Credit will still have the full value of the actual per credit tuition cost. The guarantee is an obligation of the Pennsylvania GSP Fund only. The guarantee is not backed by the full faith and credit of the Commonwealth of Pennsylvania, and is not an obligation of the Commonwealth of Pennsylvania, the Pennsylvania Treasury Department, Upromise Investments, Inc., Upromise Investment Advisors, LLC, or any other party. The GSP is not insured by the Federal Deposit Insurance Corporation or any other government agency.

Now, as you can see, this is not federally insured by FDIC or any other government agency, including the Commonwealth of Pennsylvania. What happen if they can't cover the redemption request? I remembered reading awhile back that they were not fully funded. I tried to find more info on this but I have not found reliable new information yet. If I find it, I will add it to this post later. (see update)

I personally prefer to know for sure where my money is invested, even if I may not be able to beat the increase in tuition rates. Thus the reason I prefer PA 529 Investment plan, where I have my first daughter 529 plan.

Update: I should have done my research. But as I have guessed, as of June 30, 2009, the present value of liabilities is $1,317,919,467 and the present value of assets is $1,095,022,856. That is a whopping $222,896,612 short. And I have read that PA GSP will be charging premiums for many college tuition levels. There ain't no such thing as a free lunch folks. PA GSP sounds great, until you actually dig deeper and found out it is not really "guaranteed" by the Commonwealth of PA or Fed.

Investment Plan
This plan offers Vanguard funds and managed by uPromise. You can invest in three age-based options (Aggressive, Moderate or Conservative) or 10 different individual options. The age-based options itself is actually investing in the 10 different individual options, except the fact that it will move you from one option to another option once your child get to certain age group. For my first daughter, we invest in aggressive age-based options.

Here are several observations I have with this plan:
  • The expense ratios and fees for each funds offered by PA 529 Investment Plan are surely not the cheapest available. The fees range from 0.70% to 0.75%. From all 529 plans that I have reviewed so far, in term of 529 plans that offer Vanguard funds, I think Illinois Bright Start offers the combination of fees and options. I should have done more research for my first daughter 529 plan last time. I think last time I was swayed by the fact that by choosing PA 529 plan, the assets in the plan are excluded for state financial aid purposes. But since my first daughter 529 plan is already in PA plan, I don't want the hassle of migrating to a different plan.
  • In most cases, the equity part of investments are invested in Total Stock Market. Example, for Aggressive Growth Portfolio, the allocation is 85% Total Stock Market Index Fund and 15% Total International Stock Index Fund. I have mentioned previously, such as in my review of West Virginia Smart529Select plan, I would prefer more international allocations and higher weight toward small cap and value funds.
  • One thing that I like is that it is easy to start with PA 529 Investment Plan since there is no fees except asset based management fees and you can start as little as $25, so there is no reason why you could not start investment in your child's college funds. In comparison, Illinois Bright Start, which I really like, charge $10 annual maintenance fees for index strategy portfolio.

I think I will stop looking at other 529 plans after this one. I want to make selection fast. The option that I have looked into so far has been all offering Vanguard funds with the exception of West Virginia 529 plan. Right now, my top three in no particular order are:
  • Illinois Bright Start - low expense ratios
  • PA 529 Investment Plan
  • West Virginia Smart529Select - DFA Funds

My wife is an investing wimp

Sunday, August 16, 2009 |

When I stumbled into the article My wife is an investing wimp on CNN Money, I can certainly relate to that. I am sure a lot of people can relate to this too, as the article mentioned. My wife is a lot more conservative in investing when compared to myself. As I mentioned earlier, I started my investing experience with investments in individual stocks. Those are very risky and event though I consider myself as not risk averse, I still understand the risk involve with investment in stocks. Thus the percentage of my money in equities is really small, may be around 15-20%. Not because I don't want to invest more, but that is the compromise to the level where my wife feel comfortable. But now I am investing mostly in index stocks and balance it nicely with bond funds, the percentage of our money in equities has increased. All our money not in emergency funds (we have about one year in emergency funds), we put it in our investments, which currently at around 80 to 85% in equities.

As mentioned in the article, communication in key. But beyond communication, here are several things that helps in my case (which may not necessary work for you, but may give you some ideas):
  • Having enough in emergency funds. In my case, I have to raise the emergency funds level enough to cover our expenses for a year or more. Having that amount of money in our savings account give her more confident that we can survive downturn when necessary.
  • In addition, I have to be more conservative in our retirement tax deductible account. The target allocations of equities vs bonds on our retirement accounts is based on 100-age. This is very conservative in a lot of people opinions, but the investment in our taxable account is 100% equities. This lead to another point. Bonds and REITs are not as tax efficient, thus by not having those investments in our taxable account, we managed our investment more efficiently from tax perspective.
  • I gave my wife more knowledge about each of our investments. She understand the risk better and are more comfortable with the investments. Be careful here, do not make it as if those investments are less riskier than it is. She knows a lot of our investments are risky, but she also knows that we have a lot of investments in TIPS, short term, intermediate term treasury bonds that should reduce our risks. Also, while I used love following individual stock price, do research on it and take risks with my money, including investments in options, I no longer invest in those. That fact increase her confidence in our investments.
  • Since I managed our money, I prepare a presentation slides, in this case using Google Docs, every 6 months with detail of our investments, our net worth, performance and plan for the following 6 months. It wasn't a long presentation at all. I can actually cover the whole topic in less than 10 minutes. I share the Google Docs presentation and spreadsheet to her so that she can look at it herself too.
But overall, the major thing that helps in our case is not investing in individual stocks. She felt as if we were gambling with our money when we invest in stocks. While we make some money, we lose a lot too. In addition, I was spending too much time following stock market and doing research. With our current investments strategy, I don't have to do more research daily or weekly. I just need to rebalance our portfolio and review our strategy every 6 months to a year.

Another reason I don't like actively managed funds

Wednesday, August 12, 2009 |

The longtime manager of FBR Focus, a Kiplinger 25 fund, is leaving to start his own fund.

I found this article on Kiplinger that was published a few days back, so I know it is a little bit late. Anyway, Kiplinger article Future of Top Fund Suddenly Out of Focus shows another reason why I choose not to go with actively managed fund.

With actively managed funds, the changes in the fund manager will probably lead to changes in the fund investment style. While they may try to use similar strategy, there are still instinct part of the fund managers that I think make them unique or different. With passively managed index fund, I know the strategy clearly, follow the index as closely as possible. The changes in fund managers should have little or no impact to the fund investment strategy at all.

Now with FBR Focus, if I own the fund and for whatever reason the new fund manager is not good or at least I think is not good, I will probably decide to redeem the fund. And if I have this in taxable account, this could potentially mean capital gains now. I would prefer to delay paying the capital gain tax as long as possible.

A Time to Rebalance Portfolio


I was reading WSJ article A Time to Let Go Of Overvalued Stock and it got me thinking. While I don't have individual stocks, the recent run up on the stock market has thrown my asset allocation out of whack!!! I don't think I should rebalance my portfolio every time we have market run up, but with my equity vs bonds ratio is close to 4% different that my target allocation, I decided to rebalance my portfolio. Earlier in the year, I actually have been doing rebalancing regularly, not through exchange, but by investing my Roth IRA contributions toward funds that have been lagging. But since I have reached my contribution limit for my Roth IRA for this year, I can no longer "rebalance" through purchase of those funds that have lag the other funds, thus I have to do it through exchange.

I know I probably don't have any readers that follow my blog yet, but in case if you stumble on this blog, how often do you rebalance your portfolio? If you do it once a year, do you stay the course when your asset allocations seems to be way off your target allocations, either due to market crash or market run up? I would like to hear people opinions on this.

529 Option: West Virginia Smart529Select

Friday, August 7, 2009 |

Update: I have selected West Virginia Smart 529 Select with DFA Funds. For the conclusion of my 529 series, go to 529 Plan Selection for My Second Daughter

I am continuing on my 529 series. Today I will look at WV Smart529Select. Remember that I am looking at this as a potential investor with PA residency, where I can get tax break no matter which state 529 plan I opt with. For my view on other plans, click here.

West Virginia Smart529Select has been the one that I am really interested in and thinking of choosing before I decided that I really need to look at other options. It will always get extra point for me simply because of DFA Funds available, which is usually only available through brokers or financial advisers. Important note before I continue, West Virginia offers several 529 plan, including one called Smart529! The one that I think offer the better choice for most people is the Smart529Select plan. Thus if you are interested on it, please make sure you go to the right web site.

I have provided some details about this plan on my first post on the series. As I have mentioned earlier, you can invest in DFA Funds through WV Smart529Select. DFA Funds is passively managed, similar to Vanguard Index funds. However, DFA does not necessary follow index such as S&P. It has its own indexing strategy that let it managed its funds more efficiently. One such example, if S&P changes the companies in its index, Vanguard S&P 500 would then sells those stocks and buy new stocks. Those transactions mean transaction fees, such trade commissions. With DFA, it doesn't have to sell it right away if not necessary, since it does not follow specific index. That is just a simple example (as I understand it. Reminder, I am not a financial guru, just a simple IT professional that loves the topic of personal finance). One thing that I need to make clear, DFA funds could be riskier due to its higher weighting toward small cap and value. That is actually one reason I like Smart529Select. It allows me to take more risk with the investment.

For those that is more risk averse, unfortunately WV Smart529Select only has one track for age-based option, which is pretty much the aggresive track, while other states, such as PA nowU 529 Direct Investment plan offers three age-based options, aggresive, moderate and conservative options.

Here are the key considerations:
  • Age-based options only offers aggresive track, which is actually even riskier that other states aggresive options due to higher weighting toward value and small cap.
  • The total expense ratios ranges from 0.65% - 0.77%. While it is not the cheapest, considering in many cases, to get access to DFA, you will have to pay 1% fees for advisors, I consider this low expense ratios.
  • There is $25 annual fees, which you can avoid if you meet certain requirement. If you are West Virginia resident, there is no annual fees. If not, one easy way is to enroll in automatic investment program for $50 or more/month. I am planning to put in $100/month, so this is not a problem for me. You can also avoid annual fees if you have $25,000 account balance. It is hard to reach that point right away. Also remember that if your state offer state income deduction, in many cases, you will have $13,000 limit per beneficiary/year, however, you can gift up to 5 years limit in advance, as long as you do not add anymore additional funds for the next 5 years.
This option was my top choice before I start doing my research. After my research so far, it is still my top choice, but the Illinois Bright Start option is not far behind. I won't be surprised if I decided to go with Illinois Bright Start instead of this one.

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