Email of the day (2)
Comment of the Day

July 23 2010

Commentary by David Fuller

Email of the day (2)

On a portfolio
"Thanks for your ongoing commentary which is always enlightening - although I can't say I am finding the markets easy at the moment!

"My husband and I recently moved to the US and want to set up an investment portfolio with the proceeds of our house sale with a 5 yr view (our planned return). We are at the early stages but plan for it to have six diversified buckets.... and we are trying to make the best bucket decisions! We are keen to keep our capital a) in euro b) safe and c) growing at least in line with inflation....

"We have identified the buckets as
1 - Gold
2 - Cash on deposit
3 - Blue Chip
4 - Maybe a property fund
5 - Maybe an emerging market fund
6 - Maybe an energy or technology fund

"WRT the "Global Bluechips", are there euro denominated global bluechip ETFs... I looked at morningstar but they appeared to be in USD. Appreciate any thoughts or comments on our "bucket" allocation."

David Fuller's view Thanks for the feedback and it may not be any consolation but markets are only "easy" when they are becoming overextended, on either the upside or the downside. We have lived through several months of mostly ranging activity which is whipsaw territory for some, although where the bigger corrections have occurred, it has created some buying opportunities.

Fullermoney is about Empowerment Through Knowledge - a forum for investors who are interested in global strategy and want independent research. We do not do portfolio reviews, as you know, because that is something best left to subscribers who do their own homework, as you and your husband have obviously been doing.

There are plenty of people out there who would gladly tell you how to invest your house proceeds, and probably charge you a fat fee for it, as you know. I would trust few of them with my own money. I can only offer my own personal views as to how I might react in your situation, but mainly raise points of general interest which you may or may not have considered and ask a few questions. After all, we do not all have the same priorities, objectives, experience, risk tolerance or sources of income, to mention just a few points. Our ages and responsibilities in terms of dependents will also vary considerably.

OK, the first point regarding your six investment categories for the next five years is that absolutely no one knows what will happen over that time period. So whatever goes in your "bucket", you should be prepared to make some changes as circumstances likely require.

1. Gold bullion, Eoin and I have long maintained, is best purchased on setbacks and sold on strength. The price of bullion will certainly fluctuate over the next five years although probably with an overall upward bias, provided short-term interest rates do not go up too much. Gold shares will usually be much more volatile than bullion and are certainly riskier.

2. Cash is extremely unlikely to maintain its purchasing power over five years, unless you are aiming to switch currencies deftly on a buy-low-sell-high basis. As you will know this, are you aiming to hold some cash to take advantage of additional opportunities? That would make more sense to me than just deciding to hold a depreciating asset for five years.

3. Blue chips - I think I know what you mean but that general term can also include a multitude of moribund shares. If you mean less risky, then I would define that in terms of valuations, especially yield. If it was my house money I would be overweight in shares that have attractive yields which they can afford to maintain and even increase.

4. Property fund - my first response is why? Perhaps, if it yielded over 6%. If for me, I would prefer an emerging market property fund to one in a slow growth region.

5. I like emerging market funds, as you know. I would also resolve in advance to sell them when they do too well.

6. Both energy and technology are also Fullermoney themes. Again, I would resolve in advance to sell any of these investments if they do extremely well, and go back into cash temporarily.

Lastly, do your own due diligence, not least regarding fund charges. If you like the fund but find the charges high, you can always cherry pick from among their top-10 holdings.

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