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Let’s Play “Invest Lazy Man’s Money”

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The deposit for my Tax Year 2006 Roth IRA just went through. So now I have $4000 sitting an account waiting to be invested. I'm looking for an ETF to invest in. I have $8000 in Vanguard Small Cap ETF (VB). I have another $8000 in Vanguard Total Market Index (VTI) and another $4000 in Amex Technology Spiders (XLK).

I've been thinking about iShares MSCI EAFE Index Fund (EFA). I feel the economy getting more and more global every day. If people overseas can do the same job as Americans for 1/10th the money, then business will follow. The American economy will either suffer or those countries will have great wage inflation. Perhaps I'm wrong about this, but I can't see how the wage difference can go on forever. I'm also thinking about Vanguard Health Care (VHT). America has more aging people than ever - and they are living longer. Everyone will need more medications, more health care. That means more dollars going to the companies that provide solutions. Lastly, I wouldn't be opposed to expanding the small company or total market portions of my portfolio either.

I like to be diversified in ETFs. They generally have low expenses and allow for easy diversification. What would you suggest?

Posted on January 30, 2007.

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16 Responses to “Let’s Play “Invest Lazy Man’s Money””

  1. Rich Slick says:

    Hmmm… 4k isn’t much to play with on ETFs but……..

    depending on how you feel about gold.

    Option 1
    Buy 100 shares of GDX at $38.55 and sell Sept 2007 $39 calls for ~$4.0 which would give you 10% return from now (Feb 07) thru Sept 2007.

    Option 2
    If you’re willing to sell off some of the other holding you could buy 100 shares of XLE which pays a dividend. Buy 100 shares at $56.87 and sell $57 Dec 07 calls $5.30 which would give you ~10% return for 11 months.

  2. Lazy Man says:

    I should mention that I pay $10 commission, so I like to keep the trading down.

    While I will look into trading options, this is an investment where I’d like to be diversified. I realize that the holdings inside GDX or XLE are somewhat diverse, but at the end of the day selling calls (as I understand) is basically placing a short term bet on one market or commodity.

    Dividends are nice, but in my Roth IRA account they turn into dead money. I can’t reinvest it without another $10 commission (or it wait until next year’s money comes in).

    I will also mention that I’m likely to put another $4000 in for this tax year in the next 6 months or so.

  3. Rich Slick says:

    Perhaps you can mention what your plan is for this Roth. Is this for your retirement or a vehicle for your kids college education? What is the time line? 10 years, 20 years, 30 years?
    Is it for a future home purchase? What type of returns are you looking for on an annual basis?

    Even at $10/trade, that cost is nominal compared to earning $530 (on XLE) or $400 (on GDX) given the short time window.

    If you will add another $4000 though I’d probably buy IWM. xShares recently announced a bunch new Healthcare ETFs which sound very interesting but they’re not out yet.

  4. Lazy Man says:

    Good call, Rich Slick. I am going to use it for retirement and since I’m 30, this is looking to be 30 years.

    Any reason you’d take IWM vs. putting more in the Vanguard Small-Cap (VB) that I already have?

    What do you like out of the xShares Healthcare ETFs that doesn’t already exist in other health care ETFs? I haven’t read about them, what do you find interesting?

    Yes the cost of the $10 a trade is nominal if I could depend on the share prices of XLE and GDX to stay even. I’m afraid that they could go up and someone would buy my shares at a relative bargain, leaving me with a loss, plus commissions. I don’t really know enough options at this point to be comfortable with such a move. As options aren’t typically standard stock trades, the commission that Ameritrade charges might be more – I haven’t looked into it.

  5. Rich Slick says:

    I’m bullish on two industries moving forward over the next few decades: Energy & Healthcare. I like the new HealthShares(TM) family of funds

    HealthShares(TM) Cardio Devices ETF (HHE)
    HealthShares(TM) Diagnostics ETF (HHD)
    HealthShares(TM) Emerging Cancer ETF (HHJ)
    HealthShares(TM) Enabling Technologies ETF (HHV)
    HealthShares(TM) Patient Care Services ETF (HHB)

    primarily because they slice and dice the sectors more finely than other healthcare etfs. With 80 million boomers aging, I’d like to invest in some specific areas: HHE, HHV, and HHB.

    I overlooked the fact that you were already invested in VB so I take that back and instead would look at the healthcare etfs but they’re new and have yet to prove themselves.

  6. Lazy Man says:

    Those are definitely interesting ways to slice healthcare. I wonder if they slice things a little too small for my liking.

    Maybe at a point when I have more money to distribute and fewer commissions (reminder to self: check to see if Zecco does IRA now), it will make more sense. Actually if Zecco did offer a Roth IRA, I’d definitely look to invest in some of these thin slices – thought I’d probably put a good amount in VHT and use the slices to just overweight it.

  7. I am going to deviate from what Rich Slick says, though his is not bad advice.

    I like the EAFE fund. When I am done rebalancing my retirement portfolio, I will likely have about 40-50% in international equities. The US trade deficit just seems too ugly to turn around any time soon, and the US dollar may not remain the world’s dominant currency in the next 20-30-40 years. I am bullish on healthcare, but am more bullish on international investments (for my retirement portfolio).

  8. moneymonk says:

    iShares MSCI EAFE Index Fund (EFA) is a good investment. But I also was gonna to suggest a commodity such as Gold

  9. Lazy Man says:

    My feeling with a commodity is that it’s not very diversified. Gold is more or less one entity, not a basket of multiple different entities.

    I was just saying to a friend the other day that goal is kind of like diamonds (minus the whole DeBeers thing) – it only has value because everyone agrees it does. Sure it’s the best conductor I know of, but diamonds are also the hardest stone I know of. Neither of those uses drive the price of the commodity (to my knowledge at least).

    What if people stop agreeing that gold has value? What if people agree a barrel of oil, which is used to make my car run, has more value?

  10. Savvy Steward says:

    If you already have broad international exposure in your other retirement vehicles, why not focus on certain international markets such as emerging (EEM) or Latin America (ILF).

  11. MossySF says:

    It’s hard to recommend something without knowing the full allocation is across all investment accounts. If I was looking at the Roth IRA in isolation, then I’d say you’re overweight in both domestic and growth (tech). #1 priority would be to add international, #2 value, #3 emerging markets, #4 reit.

    If healthcare interests you, Vanguard Health Care (VHT) will have the lowest expenses, iShares Global Healthcare (IXJ) will give you the industry beyond the U.S. and Rydex Equal Weight Healthcare will avoid a few large companies being your major stakes in the sector.

    If commodities interests you, Powershares DB Commodity Index (DBC) is the only choice at the moment for broad and balanced coverage of the various commodity sectors. Past studies have shown commodities have roughly the same return as stocks but are totally uncorrelated so about 5%-10% of your total portfolio can effectively reduce volatility without decreasing returns.

    VB versus IWM — different indexes, different expense ratios. Looks like VB’s MSCI index has beaten IWM’s Russell 2000 index by just a slight amount over the past 2 years. In addition, it’s 0.10% cheaper per year so no brainer to pick VB for the small cap blend category.

    You should see if your broker offers Dividend DRIPs. I’ve got all my ETFs enrolled in Etrade’s program so dividends issued buy more partial shares instead of sitting in the account collecting sweep interest.

  12. Lazy Man says:

    I really don’t have broad international exposure in my other retirement vehicles. I think that EEM is interesting, but I don’t know if I want to make a long-term Latin America bet right now. I think I’ll go with EFA for this 2006 Roth IRA and in a couple of months when I have 2007’s contribution saved up, I’ll go with VHT. The Travelin’ Man shares my view on being bullish on both and it’s really not worth my time to try to figure out which one is going to do better in the next 30 years.

  13. Lazy Man says:

    Yes, it’s always difficult to make recommendations without knowing the rest of my investment portfolio. For reference my 401k plans are as diversified as most. I don’t want to get into exact percentages, but I ran the funds through Morningstar’s Instant X-Ray (there’s a post on it), to make sure that I’m weighted pretty equally throughout value and growth, small and large, as well and international exposure.

    For the amount of money that I have in my Roth IRA account the small amount of cash coming from dividends isn’t going to be significant. I’ll invest that money next year when I make the next contribution.

  14. MossySF says:

    Clarifying that you don’t have broad exposure to international in other investment accounts make the choice a no brainer. I’d say alternate EAFA, healthcare, EAFA, emergingr, EAFA, etc. for the next few years to get the international allocation boosted up. Considering all the fundamentals point to the dollar losting value compared to the euro/rmb/etc over the long term, 45%-50% of equities overseas may very well be the optimal portfolio. You may want to think about IXJ instead of VHT for healthcare — 35% of holdings overseas would give you a double shot in both the categories you’re bullish about.

  15. Lazy Man says:

    I’m not very bullish on international health care. I’m just not that knowledgeable in that area. I think you are right with the EAF staggering. I’ll probably put a VB in there for the second EAF, because I don’t want to be more than 25% international at this point.

  16. […] year, around this time, I asked readers to invest my money. I’ve decided to turn this into an annual post – at least as long as I qualify for a Roth […]

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