The Approach: Non-Retirement Portfolio

Let me start by indicating that this blend of stocks and (very few) bonds would be deemed “Extremely Aggressive” by most standards. While I think investing in a mix as diverse as this is actually less risky than investing in what many would consider a far less aggressive portfolio, I think it best to indicate that this is by no means meant to be strategy that does not run the risk of losing value. And continuing to add to a portfolio that is losing value month after month, as should happen at some point, will be trying, but should also garner better returns when the market trends upwards, as it should.

First I will identify market sectors I want to invest in. Large and Small companies, Growth and Value oriented businesses, International companies, Bonds, Real Estate Investment Trusts, etc. Then I will come up with an order in which I should add additional sectors to my portfolio to quickly diversify and then remain balanced as I increase the breadth of sectors I am invested in. I broke down portfolios based on the ability to invest monthly one of the following amounts: $300, $500, $1000, $1500, $2000, and $2500. I could certainly invest anywhere between $100 to $2500 but the placement of each sector at each point from 1 to 25 was intended to set up portfolios of 3, 5, 10, 15, 20, or 25 funds keeping each group loosely balanced.

For each sector I am going to research what no-load, no-fee funds are available to new investors in Etrade and which ones have $100 or less minimum for additional investments.. I am going to identify the top performing funds with a decent track record and then pick the fund with the lowest expenses and the lowest portfolio turnover. Turnover is critical because higher turnover can translate into higher annual tax bills, regardless of whether the performance is better or not. Since this is a non-retirement account, that can make a significant difference over the long term. I will also look at management tenure, average P/E ratios of stocks held within the fund, the initial amount required to purchase, etc.

I want to stress that I am not going to compare these factors in an extremely precise way. If the numbers of two funds are close, I am not going to follow a system and pick the one with a fraction of a percent lowers on one number or the other. I may choose a fund with higher expenses if the potential for performance seems greater (but it would have to be a lot greater to compensate for higher expenses over time) or if the turnover is lower, hoping the tax savings offset the expense difference. I will try and indicate the things I find in my research and the reasons I choose the funds I do.

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