Changing Core Investments

Before I retired, my core investments to generate income were my job and my company stock.   After I retired, my company stock continued to be a core investment, accounting for 33-50% of our net worth.  Over the past two years, I have been selling down the percentage we have in company stock toward a target of 10-15%, which will be achieved in 2017.

As I was reducing our company stock exposure, I realized we need to replace my company stock with another core investment.   I've looked at a few options: 1) advisor managed accounts;  2) self directed stock selection; and 3) index ETF portfolios.

I've been testing advisor managed accounts as a core investment since late 2012.  During that time, I have been happy with the results since the returns have been positive in the double digit range.  So I've been able to rationalize the 1% wrap fee as equivalent to the expenses of an actively managed mutual fund.   Of course, I realize that the 1% would have been an additional loss if the market had declined.  Also, none of the manage accounts exceeded the benchmark returns.  Thus, I am open to considering other options which may be lower cost.  For now, I will keep the managed accounts I have mainly because I like the stocks that have been selected.

Since mid 2012,  I've been experimenting with investing in individual stocks.  I've tried a long/short strategy, a sector (biotech, energy or materials) focused strategy, and a dividend stock selection strategy.  The main issue with the long/short and sector strategies is insufficient time and expertise to continually research the hundreds of stocks that can be considered for each strategy.  Also, I have a tough time deciding when to sell a stock, either for a gain or to cut losses.  The dividend stock strategy appears to be a good approach, since the stocks tend to from good companies and the dividend will offset short term price declines.  In addition, the plan is to keep the stock in perpetuity for the dividend, and therefore would only be sold due to a catastrophic event.  I continue to slowly build a dividend stock portfolio.

In 2013, I began to build a ETF investment portfolio based on low cost, commission free index ETFs. Unfortunately, I sold out of most of the ETFs a in the bounce shortly after October 2014 correction since I expected a further decline.   Up until now, I've been using the commission free ETFs for a trading strategy.  So the next step is to test using commission free index ETFs as a core investment portfolio.  I will be implementing the ETF strategy this month in our IRA accounts.

At this point, the index ETF strategy feels like a good option for the main core investment strategy.   However, I will run the test to determine if I will be comfortable keeping a significant amount of our investment funds in this strategy.

For more on  New Beginnings, check on Sundays for another segment.

This is not financial advice. Please consult a professional advisor.

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