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#1: Re: thoughts on these potential rollover investments?

Posted on 2006-02-22 20:38:44 by Tad Borek

<a href="mailto:screenaccount&#64;gmail.com" target="_blank">screenaccount&#64;gmail.com</a> wrote:
&gt; I've
&gt; become interested in investing in international stuff (emerging
&gt; markets) and the energy industry. (Note, though, that 20% of my Morgan
&gt; money is already in an international fund.) So, because ETFs have been
&gt; recommended, I was thinking of rolling over the $11K, if possible, into
&gt; some sort of IRA consisting of maybe Vanguard or Fidelity ETFs covering
&gt; the international and energy markets; I would probably make only very
&gt; sporadic contributions to those ETFs afterwards, what with the fees and
&gt; all.


Because you mentioned emerging markets and energy...be aware of the very
real dangers of chasing performance, it's a human-behavior problem that
can lead to poor investment returns. Not that you shouldn't invest in
foreign stocks or energy companies, but this asset class (emerging
markets) and industry sector (energy) have gone up a great deal lately.
Are you comfortable adding new dollars now? If you didn't buy Google at
$100/share would you buy it at $365/share? The danger, simply put, is
that you &quot;buy high, sell low&quot; by purchasing things that have run-up
lately. Sometimes &quot;momentum&quot; works in your favor, because recent winners
continue to do so, but you might get there after the train has left the
station.

And WRT energy, keep in mind you've already got quite a bit invested
there if you hold something like an S&amp;P 500 index fund or really, any
broad-market US stock fund. At the moment, more than half of the
cumulative earnings on the S&amp;P 500 are being generated by the energy
companies among the 500 companies included in the index. You might look
at your current investments to see how much you already have invested in
energy.

And to be direct: given your numbers you're suggesting a VERY risky mix
of investments. $11k to emerging markets &amp; energy, after they've both
run up, and in a total retirement portfolio worth just $20k. You'd need
to be comfortable with risk, and shouldn't be surprised to see losses,
to take on such a concentrated portfolio.

RE: ETF vs. traditional mutual funds...ETFs make more sense for larger
purchases &amp; sales, done occasionally. Their cost advantages might go
away if you'll be paying even $10 commissions on $1k-$2k purchases, or
if you'll be charged any annual or quarterly fees by the brokerage firm
where you keep your ETFs.

-Tad

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