Retirement Strategy in Basket (Cs)

NOTE: This entire blog series is my trading notebook. I am NOT an expert investor, so be very careful trying to learn from me, I am just taking steps to make my notes and research available to myself and close family. You are very welcome to read and comment and even tutor me should you feel gracious :) The overall strategy is listed at the bottom of this post.


6/6/14 SCHH dropped a bit, 5 Limit 35.70 Last close 35.86.

5/15/14 hoping for friendly dips
20 SCHM 37.00 L 37.62
20 SCHA 49.5 L 37.62
20 SCHB 44.00 L 45.37
20 SCHG 45.00 L 45.89

4/23/14 The market was a little soft today, but since there is no trade commission for these I added a little bit on dips, SCHH 10 M, SCHA 10 M.

4/2/14 Received the Matthews fund prospectus by email today. This basket has MAPTX, the Matthews Pacific Tiger fund (Asia/PAC ex Japan). According to the prospectus the 1 year performance was 3.63%, 5 yr 18.96% and 10 yr 12.68%. Inception was 9/12/94. I have held it for a bit over 5 years. I do not normally like mutual funds, but I don't really want to try to study the region. The expense ratio is on the high side 1.11%, but I have not found anything better to date. It has a four star overall Morningstar rating. The big news was the intro note from the President and CEO, they are soft-closing Pacific Tiger to new investors.

3/11/14 SCHA 10 M 54.06.

3/4/14 The market is very happy today. Needless to say, it can't continue like this forever, but WOW. OK, keeping fully in mind no one can time the market, here is my strategy. I can't time the market, I do not have Wall Streets mainframe computers, but many online brokerages will let you set an email alert. So while things are going up and up and up, I can set limits for when they come down. As has been said many times, there is no trading fee so I can work with small amounts, the trade hits, and I get an email alert and decide whether to make a larger investment. Current order status:
10 SCHA L@ 46.50
15 SCHB L@ 42
30 SCHC L@ 30
25 SCHE L@ 23
50 SCHE L@ 17.5
25 SCHF L@ 27
15 SCHM L@ 35.5
10 SCHP L@ 53.6
10 SHCP L@ 53.65

Why do we have two SCHP orders so close together, if I get lucky and this dips, I have two chances to pick up on the state change.

2/21/14 DSUM dropped a bit today. 100 market@25.32. SCHP 10 L@53.65. LC 53.71.

2/11/14 TIPS bond ETF. I have dumped most of my bond funds in favor of actual municipal bonds. But I still have this one and it is dropping. I can trade SCHP with no commission, so small orders are common in this basket. 5 L@53.75 LC 53.89.

2/3/14 Market is a bit off. Put in some limits, the numbers are small since there is no trading fee for these, all reinvest dividends, all GTC. 15 SCHG L43, 15 SCHB L42, 25 SCHF L27, and the last is a bigger bet and a deeper limit since this is an emerging market ETF 50 SCHE L17.5

12/21/13 Analysis of the basket. There are no moves to make. It is up almost across the board. There are no losses to speak of to offset the gains. Four of their ETFs show negative at the 90 day window and two: SCHE, (emerging),  and SCHH, (REIT) are overall down. All purchases are Market to ensure they "hit": SCHO 10, SCHH 10, SCHP 10, SCHE 5.

11/30/13 SCHH, the Schwab ETF for REITs took an almost 1% drop on Friday. Set up a buy for 20@Market. Keep in mind that if you use the Schwab platform there are no trading fees so small adjustments are possible.

11/29/13 SCHP, the Schwab ETF for TIPS has been dropping. Picked up 10 shares @ market. Inflation has to happen at some point, though I agree you can't see it in the numbers right now, but as ideal buying opportunities become available, it makes sense to have an inflation shield.

8/2/13 Exxon (XOM) dropped 1.23%, Limit for 25 @91.25. SCHD (Dividend payers) dropped just a tad, Market for 10 shares @34.42.

8/1/13 SCHH (REIT) dipped a bit though it is still positive, bought 10 shares@market 32.24.

8/1/13 SCHP (TIPS) is my only bond fund anywhere and it finally went negative which is what I expected. My plan is to keep my powder dry and set up a calendar event for 45 - 60 days from now and add to the position then. I can't time the market, but I do expect it to drop a bit more LC 53.91.

6/1/13
Market finally dipped a bit. 10 shares SCHE@Market, 10 shares SCHF.

4/20/13 I did profit taking on Chevron (CVX), but forgot about the ex-dividend date, so I ended up with a fraction of a share. That clutters up my screen and also has kept Chevron on my mind. Set a limit for 20@115.00. Part of the thesis for this stock is that according to this web site, its Graham number indicates it is a value buy. So this is a long shot, but I put in a limit for 105.00, it last closed at 115.90, so the odds are fairly low, but if you don't ask ....

If you live by IBM, you die by IBM. This has been the most successful stock in this basket. On Friday it dropped by 17.15 8.48%. Apparently based on some analyst's downgrade. Well, I am not that smart, but in a bull run, you buy on dips 15 shares@Market.

4/15/13 The market had a significant drop today, likely related to the Boston Marathon Bomb. Our prayers are with the injured and those grieving a lost one. We added to our position with SCHA, SCHM, SCHC and VBR.

Update March 30, 2013
The four lowest performing equities in Cs. The good news is that everything is in the green because the market is way up. The bad news is some of these are just barely in the green.
SCHO Intermediate Treasury +.42 1.36% of basket
SAMBX Floating rate +.44 10.01% of basket (just added, no need for concern)
SCHE Emerging Markets +0.94 3.15% of basket
SCHZ US Aggregate Bond +1.53 0.53% of basket

Are there better candidates to replace these in the Schwab universe? No, I have all of their ETFs, but they now have commission free ETFs. In the bond section I found three interesting possibilities:
BKLN, a senior floating note ETF
CWB, a convertible ETF
DSUM, which invests in Chinese bonds in the RMB (Renminbi) denominations. My portfolios only have a minor exposure to the world's second largest currency and it pays a dividend, so it looks useful for long term retirement income. Let's compare to my two laggard bond ETFs.
             30  90 180 365
DSUM   1    1   1    1
SCHO   2    -    -     2
SCHZ   3     2   2    3

Decision: Close position on SCHO, SCHZ. Open position on DSUM 200 shares @Market 25.16, accumulate on dips.


Update: March 18, 2013 After a fairly serious climb the market retreated just a bit today. Put in a limit order for 10 shares of  SCHV@34.00. I do not expect it to hit, but if it does, it will be time to be paying attention.

The overarching strategy for Cs

As I get closer to retirement, I keep trying to think about the best strategy/strategies. I need to be tax efficient and try to grow the principal.  Each of the baskets, (this is only one basket), is designed to contribute to the overall portfolio. In 2014 I do not expect to have to draw from any of the baskets for living expenses, therefore we are still in a building mode. The book Davis Dynasty by John Rothchild makes it very clear one powerful strategy is the idea of compounding. Until I need to withdraw funds for living expenses, I will keep re-investing dividends to the extent possible.

At some point, I will need to draw from the investments. On the main, I am still working from the 4% rule, even though I realize there are some hiccups in the logic of that rule. I do not need to support Kathy and I from the Cs basket entirely, but it will need to be part of our support. We will grow the basket as much as possible before we need to draw from it and then convert all the reinvests to pay us as it comes due.

The makeup of basket Cs as of March 10, 2013

Basket Cs, to be honest is a bit of a mess. But it is designed to temper the rest of the portfolio and lower volatility, while still earning money and growing principal. Here are its strategies or components from largest position to smallest:

Low cost, broad based ETFs

These cover everything from REITs to Emerging Markets to US Large Caps in 14 ETFs ( we are treating small cap as a separate strategy).  Many people would argue that you should not have multiple asset classes in one basket, but the basket is based on a strategy. There is no commission to trade these ETFs, so I buy on dips and tend to make small orders, 5 ETFs, 10 ETFs etc. I have great respect for Ken Fisher and his book Debunkery, and so-called Dollar Cost Averaging is Bunk 14. And Ken is probably right most of the time. But with no commission to trade and with patience, I think the advantage is mine. My Thesis for this strategy was based on some research I did a few years about and continues to be valid. I wish this was not true, but almost any asset class in this worldwide interconnected market correlates over time. Individual stocks can fall to zero, but these are index based ETFs, I somehow do not expect mid cap stocks to cease to exist as an asset class any time soon. Any asset class may fall behind for a year or two, but over a significant amount of time they tend to end up at about the same place. You can read more specifics here.

Fixed income

As I was closing out the original use of the basket to create Ck, all dividend stocks, I did some profit taking. I picked up some short range bonds and CDs hoping to replenish my rainy day fund as opportunities arise. This is also an effort to reduce the volatility of the entire portfolio. 19.59% of the basket.

Individual equities

To be honest, this is a result of a change in the strategy of this basket. I probably should have sold them off to make the basket cleaner, but check out IBM's 5% performance, I am not ready to profit take that just yet. I have two individual equities:
IBM 15.33% of basket
XOM 3.1% of basket

Cash on the sidelines

Need to have some money available to take advantage of opportunities. 10.81% of basket.

Floating rate fund

I used some of the profit taking cash in the account to add a floating rate mutual fund. This is a taxable, fixed rate income mutual fund (SAMBX) that should add some diversity to this basket.  I am reinvesting both payouts and capital gains. This is currently 9.98% of the basket. More information is available here.

MAPTX

Asia Pacific ex-Japan. This is from the older basket, but has performed well, so I am letting it ride. Gives me some emerging economy exposure. 8.16% of the basket.
8/1/13 24.39

Small caps

I have two ETFs VBR and SCHA that are highly correlated. Currently, they are a bit over 3% of the basket, the strategy is to patiently grow them to 10% during market corrections. More detail can be found here.