Go to Jeff Salisbury LWGate Home Page.From: Randy Barnes <rbarnes@mindspring.com>
Subject: Re: Subject: Asset Allocation & Overlap pgm.
Date: Mon, 27 Jul 1998 21:19:31 -0400
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> I'm trying to gather opinions on whether the mutual funds I have contain > enough diversification. > Baron Asset - 8.5% > Janus - 10.9% > Vanguard Wellington - 34.9% > Vanguard Windsor - 24% > Vanguard Windsor II - 21.7% You can't seriously think you're should diversify more than this. In funds alone you own 657 stocks and over 200 bonds! Add to this your stocks directly held and you're way over diversified. The mutual fund companies/salesman love guys like you who read the slick grocery store magazines and pay them billions of dollars a year. Only one of your funds has any history of success beating the market; Janus. It's a keeper and really the only one you should own. If you want some bonds, I'd use a little of the extra cash a purchase Treas. Bills/Bonds directly. The fact is that about 90% of all active managers can NOT outperform the overall market. Your Portfolio is a perfect example. This portfolio will never do as well as the overall market. Not only that, you're paying somebody fees for the privilege. You even have complex statements and tax consequences if you are not sheltered. What's my point? First of all do not sell anything without considering all the angles. If you have big gains you may have big taxes. Get some professional advice here, I don't own taxable funds and don't want to even think about this topic (headache!). Educate yourself to what's what. I have been researching the facts for our investment club and have found that the facts are indisputable. They just aren't sexy and don't sell magazines, but they are the facts nonetheless. Passive management is king, and consistency is queen. Forget adding more money in your funds, but rather start buying yourself SPYders every month. This is the S&P index all rolled up into a share of stock traded on the Amex. (Ticker = SPY). It' no muss, no fuss, and will out perform all but the very best or very lucky. Open your account somewhere online and pay only $8. (We trade at Waterhouse at $12 and like the option of actual people to talk to.) What could be easier. You'll gain financially by an increased performance and increase your quality of life by not trying to figure out if you're diversified enough. And whatever the "overlap" thing is just another waste of money, and or energy. If you want to hear from James O'Saughnessy and a bunch of Nobel prize winners on this topic then follow the link, and read the book below and "bone-up" on this stuff. It's the real thing! How Really Smart Money Invests - from FORTUNE Mag, July 6, 1998 http://www.pathfinder.com/fortune/investor/1998/980706/dfa.html What Works on Wall Street by James P. O'Shaughnessy- (at your library?) http://www.amazon.com/exec/obidos/ASIN/0070482462/o/qid=901586867/sr=2-1/002-5435030-4975250 OK, OK. I was only going to offer a comment, but I'm just getting started. Let me stop now or I'll ramble all night. My hat goes off to you for your fantastic efforts and sacrifices to scrape together such a handsome nest egg. You're obviously a fine American and one we all need to emulate. The REAL secret to this stuff is to sock that cash away SOMEWHERE. What fund or stock you buy is much less important that buying it on a consistent basis. Best Wishes, Randy Barnes - -
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