Author Topic: Mock Portfolio and Overlapping Funds  (Read 1739 times)

xena

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Mock Portfolio and Overlapping Funds
« on: May 19, 2017, 07:08:34 PM »
Hi all,

 In an effort to educate myself and "get my feet wet" before creating a long-term investing plan(Index funds, individual stocks, etc), I created an Investopedia mock portfolio about a month ago. My stock portfolio is doing slightly worse than the market and I certainly could start selling and making transactions, but I don't think that's going to teach me anything valuable. It's not possible to truly replicate market behaviour over the course of a month or even three and I'm looking for opinions on how I could use a mock portfolio to my better prepare myself. What questions should I be trying to answer and what's a reasonable length of time to maintain the portfolio before actually buying stocks? And yes, I do plan to buy stock index funds, in addition to individual stocks, as a part of my core portfolio strategy.

I read somewhere that it's not a good idea to replicate one's index portfolio with individual stocks. I expect some overlap to take place if I choose a broad market ETF or index fund. I can't seem to find a way around avoiding this overlap. Do you have any suggestions regarding going into common stocks when most of the companies are going to be tracked by an ETF or a specialty ETF in my portfolio?


Many thanks!

MustacheAndaHalf

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Re: Mock Portfolio and Overlapping Funds
« Reply #1 on: May 19, 2017, 08:53:20 PM »
Sadly if you'd beaten the market during those few months, you'd have a whole different attitude about your newfound luck.  But in the medium term, people with far more resources and experience still can't beat the S&P 500.  About 90% of active funds fail to beat it at various time frames.

Most people don't look at the history of indexing vs other approaches, and so most people don't know how valuable it is to use index funds.  Since index funds try to spend as little money as possible, they don't have the advertising budgets of the other funds.  And authors need to tell you a new great idea to sell their book, so most investment books tend to also favor active investing.

If you need to pick stocks, try and limit that behavior to the smallest percentage of your portfolio that you can.

xena

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Re: Mock Portfolio and Overlapping Funds
« Reply #2 on: May 20, 2017, 10:59:56 AM »
You might want to find the JL Collins stock series.  It is a very helpful primer on investing as well as helping new investors assume the right frame of mind.

I'd suggest focusing first on one or two index funds for at least the first 10 or 20K of investment, and add stocks later if you still think they are necessary.  You may decide as many people here do to just stick with index funds. 

To check for portfolio overlap using the morningstar portfolio X-ray can be helpful. 

http://portfolio.morningstar.com/Rtport/Free/InstantXRayDEntry.aspx

This will quickly show you how you stack up against the S&P and whether any of your sectors are overweight or underweight.

I do plan to start by focussing at least 80% of my portfolio on index funds.

Thanks for the link! This seems to be a very useful tool.




xena

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Re: Mock Portfolio and Overlapping Funds
« Reply #3 on: May 20, 2017, 11:07:29 AM »
Sadly if you'd beaten the market during those few months, you'd have a whole different attitude about your newfound luck.  But in the medium term, people with far more resources and experience still can't beat the S&P 500.  About 90% of active funds fail to beat it at various time frames.

Most people don't look at the history of indexing vs other approaches, and so most people don't know how valuable it is to use index funds.  Since index funds try to spend as little money as possible, they don't have the advertising budgets of the other funds.  And authors need to tell you a new great idea to sell their book, so most investment books tend to also favor active investing.

If you need to pick stocks, try and limit that behavior to the smallest percentage of your portfolio that you can.

Great point about advertising budgets! And I've read about the value of a simpler 3-index fund/ETF portfolio and I will start with that. However, I've also read a bit about the Ben Graham value investing philosophy and it seems like a good idea to follow,research and buy a few individual stocks even if that means increasing the risk I take on a bit if I can get a slightly higher ROR in the short term. I'm trying to combine these two philosophies to create a strategy. I will try to keep the individual stock component to a minimum when I do start though.

Proud Foot

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Re: Mock Portfolio and Overlapping Funds
« Reply #4 on: May 24, 2017, 09:57:52 AM »
Sadly if you'd beaten the market during those few months, you'd have a whole different attitude about your newfound luck.  But in the medium term, people with far more resources and experience still can't beat the S&P 500.  About 90% of active funds fail to beat it at various time frames.

Most people don't look at the history of indexing vs other approaches, and so most people don't know how valuable it is to use index funds.  Since index funds try to spend as little money as possible, they don't have the advertising budgets of the other funds.  And authors need to tell you a new great idea to sell their book, so most investment books tend to also favor active investing.

If you need to pick stocks, try and limit that behavior to the smallest percentage of your portfolio that you can.

Great point about advertising budgets! And I've read about the value of a simpler 3-index fund/ETF portfolio and I will start with that. However, I've also read a bit about the Ben Graham value investing philosophy and it seems like a good idea to follow,research and buy a few individual stocks even if that means increasing the risk I take on a bit if I can get a slightly higher ROR in the short term. I'm trying to combine these two philosophies to create a strategy. I will try to keep the individual stock component to a minimum when I do start though.

Using the Ben Graham value investing philosophy is a good place to start for purchasing individual stocks.  Something else to consider is why you want overlap in those specific companies. What is the reason for increasing your allocation in those items.  Obviously you need to believe in the company but will this investment help to increase your returns? Will it reduce your paper losses in a market downturn?  You also mentioned a slightly higher ROR in the short term.  If you are looking short term for the individual stock then you need an exit strategy to lock in the gains or limit the losses.  You should probably do this too if you are looking long term but it would most likely have a different criteria. I personally hold some individual stocks in my portfolio and while I purchased and plan on holding for the long term I do also have a short term exit criteria.  I exited one of  my positions last spring due to the company meeting my short term exit criteria.

surfhb

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Re: Mock Portfolio and Overlapping Funds
« Reply #5 on: May 24, 2017, 10:17:15 AM »
Read my reply in the "shoot, I just stock picked" thread :)


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