Update on Grow Your Dough Throwdown: Julie’s Investment Experiments

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Jeff Rose at Good Financial Cents has asked bloggers who are participating in the Grow Your Dough Throwdown to provide updates on our investment picks. He also asked us to name our portfolio.

I decided to name mine “Julie’s Investment Experiments.” My goal is to test investment strategies that 1) are likely to be pitched to new investors; 2) are recommended to the general investing public (that is, are not fee-based expert recommendations; and 3) require minimal analysis after the initial investment.

I realized that there are four main types of investing strategies

There are a lot of investment tools available through online brokerages and advisory services. So, my experiment this year is an attempt to sort through various types of recommendations (not all of them but a few), determine if any techniques are worth adopting, and clarify how these strategies might fit within an investment portfolio.

The types of investing strategies can be categorized in the following ways:

Market index investing

Market index investing can be as simple as buying one mutual fund or ETF that represents the entire domestic or world market. It can also be more complex, involving the selection of multiple funds representing large cap, mid-cap, and small-cap stocks among U.S. and non-U.S. companies along with bond funds.

For a primer on investing in market indexes with sample portfolios, check out Barbara Friedberg’s microbook on investing. Note that I am a more aggressive investor and prefer a lower allocation of bonds, but you’ll get the idea on how to design and implement a market-index portfolio.

Investing based on your own selections (whether stocks, bonds, mutual funds, and/or ETFs)

You can invest based on your own selections. For example, you might be a value investor, buying shares of undervalued stocks and selling them when stock prices are in line with true valuations. You could focus on buying high-growth companies, purchasing shares when companies are young, buying more shares as companies grow, and selling when the companies seem to have reached their maturity and prices have stabilized.

Investing based on expert recommendations

Alternatively, you could develop a portfolio based on expert recommendations. Years ago, such recommendations may have come from your full-service stockbroker. Today, a model portfolio or recommended stocks, mutual funds, or ETFs might be developed by experts that package their recommendations in the form of monthly newsletters or premium access to websites.

Hybrid approaches involving index and expert investing for both do-it-yourself and do-it-for-me investors

Further, you might employ more than one of these strategies. For example, you could buy and hold a core portfolio in market-index funds plus use expert recommendations to invest a percentage of your assets.

The hybrid approach to investing seems to be growing (at least in terms of the number of services provided by online advisory and brokerage firms), especially in the do-it-for-me category. For example, Betterment offers a platform in which experts invest in ETFs for you using standard allocations of stocks and bonds based on your investment goals. Using a very different strategy, Motif Investing creates and packages investment selections called motifs (baskets of stocks) that individual investors can choose based on recommendations from its staff experts and its community of experts.

Day-to-day swings in stock prices have been dramatic

As I prepared this post, the value of my investment picks kept changing significantly. LinkedIn, for example, recovered from some negative news, and then gained in value before declining by $9.73 (yikes!) on the last day of February to show a loss year-to-date. Meanwhile, a few other holdings grew in value.

Here is my update as of February 28, 2014:

Schwab International Equity ETF (SCHF): $1,016.96

SCHF is an international index exchange-traded fund (ETF) that tracks the FTSE Developed ex-US Index (basically, stocks of non-US companies in the developed world).

Typically, an index fund is best suited within a comprehensive portfolio, rather than a standalone investment pick. But since my portfolio is currently overweighted with domestic, large-cap stock, I decided to choose an international fund. I picked one that was on Schwab’s recommended list and is commission-free when purchased through its brokerage firm.

I invested all but $8, which remains in cash.

Royce Pennsylvania Mutual Investment Mutual Fund - PENNX: $1,007.57

E*Trade offers PENNX as one of its All-Star Funds in the Small Growth category (note that the fund’s inclusion in the list of All-Star Funds is subject to change).

Like SCHF, I bought PENNX to get more exposure to a category other than large-cap, domestic stock. Also, there were no trading costs associated with this purchase. Again, like SCHF, this mutual fund should be part of a comprehensive portfolio, not a stand-alone investment. All of my money was invested with this purchase.

Betterment – Build Wealth: $1,003.99

Betterment is a relatively new investment tool, designed for new investors and those who want to simply deposit money and let an expert invest on their behalf. You indicate your goals and time frame (mine is Build Wealth with no specific time frame) and the company develops an asset allocation and buys ETFs for your account.

There is a small fee for this service, which you could do yourself with some research and some periodic maintenance. One of the main benefits of the service is that all of your money is invested, with no extra cash left over. Plus, it’s really easy.

I meant to start this investment on January 1. But Betterment invests your money immediately, no waiting on the calendar or a special signal from you. Funding your account gives the firm the authorization to invest now. This approach is fine but different than other online brokerages, where you fund an account and then invest.

Individual stock selections – LinkedIn (LNKD): $974.21 and MasterCard (MA): $929.25 (includes cash portion)

LinkedIn (LNKD) and MasterCard (MA) are individual stock picks. I bought these through my brokerage account as a result of free recommendations by The Motley Fool as two of a few stocks worth owning for the long term.

Though the shares were trading at very different prices when I made my purchase (LNKD at $208.00 and MA at $83.33), the cost of the trade was the same ($9.95) and amount invested was nearly identical ($832 and $833 respectively) with close to the same amount left over in cash ($158.05 and $157.05).

Both companies should be around for awhile, particularly MasterCard, which provides a platform for electronic transactions. LinkedIn is also a strong company with growth prospects. I am disappointed in their performance to date but plan on holding these stocks.

Motif Investing – Cash Flow Kings: $994.23 + Natural, everyday foods: $1,074.70

Motif Investing allows you to invest in one of its motifs (a basket of stocks based on a theme or motif), one created by a community member, or one that you have created for yourself (that others can buy).

Cash Flow Kings

For my first motif pick, I chose one of the firm’s motifs called Cash Flow Kings. I landed on this motif primarily because I was concerned about the high valuations and riskiness of many growth-oriented companies. Also, to me, cash represents stability, the capacity to take advantage of opportunities, and the ability to withstand difficult times. Companies that generate lots of cash though may be more mature and have limited growth prospects. But given what I perceived as a slightly uncertain economy, I liked Cash Flow Kings because of its cash and average valuations.

I considered doing valuations of each stock with the motif. But ultimately, I decided to forgo this analysis as a way of testing the strength of motifs created by Motif Investing and included in its catalog. Also, I did not want to spend time keeping up with the valuations throughout the year – I wanted to replicate what a typical, time-strapped investor will most likely do.

Natural, everyday food

This motif is one that I created myself. It consists of four stocks that were chosen on a few criteria important to me:

  • company produces and/or sells natural or organic foods
  • company sells foods at a price that is accessible for everyday or frequent consumption (prices are not necessarily cheap but are considered non-luxury items)
  • stock price was at or below what I considered a fair valuation

The stocks included are Panera Bread, Chipotle, Hain Celestial Group, and Annie’s. From what I could discern, Motif’s default weighting is by market capitalization, which I chose. As a result, my investment is more heavily weighted toward the larger companies. You can also choose an even weighting so that your investment dollars are spread among the stocks evenly as well as a custom weighting that you design.

The minimum investment advertised by Motif Investing is $250. However, after creating my motif, I could not buy it for that amount. I kept getting a message saying that this particular basket of stocks required a higher investment, such as $1,061.98, because of fluctuating market valuations. Eventually, though, after market prices fell, I was able to buy my own motif. The nuances to this investing method was new to me and so I ended up investing less than $1,000 in this motif ($981.90).

This investment has been my top performer. Valuations were lower when I purchased the motif (that is, the market was down) and these stocks are more growth oriented, contributing to their rise in value.

Just two months in, I have learned a lot, not just about investing (and stock market fluctuations) but about how financial services firms position and promote their products.


Turn Ideas Into an Investment. Customize or Build Your Own Motif.