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My Not So Diversified High Rate of Return Portfolio

Published 9/19/07 (Modified 3/14/11)
By MoneyBlueBook

As was expected, the Federal Reserve cut a key short term interest rate yesterday by a half percentage point to 4.75%, sending investors into a frenzy. Investors went bonkers and jubilantly bought shares, sending the U.S. and world stock markets soaring. The Fed also indicated that more rate cuts could be on the way. Interestingly, federal funds futures on the Chicago Board of Trade are now pricing in a 100 percent chance that the Fed will cut rates at least one more time before the end of the year.

I have to applaud the Fed for being gutsy enough to take aggressive action amid the credit and mortgage market meltdown. While this certainly won't solve the sub prime mortgage mess immediately, at least it's a move in the right direction. I personally think the housing recession still has a long ways to go before recovering. But why am I still very skeptical that this resurgence is for real? That's probably why I still have un-invested cash on the sidelines, waiting for the right opportunity.

My Current Investment Portfolio for 9-19-07

I logged onto my Fidelity Investment account at the close of trading and took a peek at my gains for the day. My portfolio was up 5% due to the Fed's announcement, a remarkable one day gain with impending recession fears only a few weeks ago. With today's Fed announcement, I think now is a good time to evaluate my investment portfolio and financial strategy. And it's a doozy.

Looking at my portfolio it's plain to see that I have a very un-diversified and growth oriented mix. I have indeed enjoyed a very profitable year to date as my funds have performed exceedingly well. My approximate rate of return on the year is nearly 25%. However, I still have a ways to go in properly planning out my financial future. My portfolio is rather risky as all of my investments (including 401k and Roth IRA) are currently in foreign stocks.

Approximately 68% is in the Fidelity South East Asia Fund (FSEAX), 16% is in the Fidelity Latin America Fund (FLATX), and the remaining 16% is being held in Fidelity Cash Reserves (FDRXX). What can I say? At my stage in life I am willing to tolerate a lot of risk for the opportunity to rake in a high rate of return. I stick with mutual funds though to minimize the potentially disastrous effects of a single stock getting hit by unforeseen bad news.

As I previous indicated, given a long enough investment horizon, the stock market has always cumulatively trended upwards. The greatest growth potential can be found in Asia and so that is where I have chosen to invest my money.

However, in the coming months and years, as my investment horizon naturally shortens and my life priorities change, I will begin diversifying and reallocating my investment holdings to minimize my risk exposure.

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5 Responses to “My Not So Diversified High Rate of Return Portfolio” 

  1. JMS99 says:

    I had similar thinking with my 401k back around 1999, and had almost all of my money in aggressive growth funds. I had fantastic returns for a year, but ended up losing about 80-90% of my retirement savings. If I had stuck with a more sensible asset allocation, I'd have had all that extra money earning compound interest the last 8 years or so, which would have made me much better off. If I could correct my past mistake, I would have limited the high risk portion of my portfolio to about 20%, and put the rest in the S&P and Western European indexes. I still would have lost a fair amount, but those indexes recovered after a few years.

  2. Raymond says:

    I appreciate the advice. You're right, unlike the Nasdaq, both the Dow and Snp 500 have managed to recover since the dot com bust.

    Rather than re-shift my current holdings, I'm going to start increasing positions in SnP 500 type indexes. I don't want want to be writing here years from now wondering why I didn't listen to those people who told me to diversify and limit the risky portion of my portfolio. :)

  3. norak says:

    This does seem aggressive. How young are you?

    If you want to be even more aggressive you can borrow to invest in a geared fund that invests in emerging markets.

  4. Raymond says:

    I am in my late 20's, so yes my investment approach is likely much more aggressive than would be recommend for someone closer to retirement. Rather than focusing on asset preservation, I'm locked in on growth right now.

  5. Tom Clemmer says:

    Back in the 80's when I was in my 20's I joined an investment club and a wise old guy told me to take a stock I had faith in an hold on to it for 10-20 years. I had 10K to invest. Make sure the company had room for a lot of growth and might domainate the market. Maybe a product you see everyday. Well, I picked NIKE and did well on that first 10K. It was very hard not to sell and take a profit...just keep the Buffet approach of buy and hold I was told. Another guy in the club bought a mutual fund with about the same about of money. Today his account is worth about 85K after ten years and he is very happy. Of course my investment is worth much more...these are the chances one has to take to make fortunes in the stock market. If I had to start over and pick single stock I don't know what I would pick - solar, retail, gaming, heathcare, biotech a lot looks good to me now. But, now that I have money and am older and looking at retirement in 15 yrs. I favor taking an ETF...with a trailing stop of about 10%.

    But, if I was back in my 20's I'd look at single stocks...small cap growth. Pick a winner and hold on to it.

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