One of the great things about life is change. Tired of the daily turkey sandwich for lunch? Give sushi a try. Don't like where you live? In most cases, you're free to move. Your wife can't stand your favorite, wafer-thin, 10-year-old T-shirt with a couple of holes in it? In the trash it goes. OK, maybe not all change is good. But overall the learning experiences that come from change are well worth any inconvenience.
Due to some recent changes in my own life, I find myself with a 401(k) plan at a former employer that I'm going to roll over into an IRA. I was never thrilled with the investment options available in my former employer's 401(k) plan, but the company match was too good to pass up. Like any good Fool, I paid in for the free money. Now the free money is off the table, and it's time to start investing this money the way I do my other funds.
Where to start?
The first decision will be selecting a broker for my rollover. There are plenty of options out there, but I'll be starting with our Broker Center to help me compare the pluses and minuses of each broker. In my case, I'll be looking for low commissions and preferably no fees on an IRA. Your needs may be different, but our Broker Center has a great getting-started area to help anyone, including yours truly, with choosing a broker.
A new beginning
The easiest thing to do would be to simply load up on positions that I already own today in my taxable account. I already know the companies well, and it wouldn't take much effort to take the number of companies I hold today, divide by the amount I have to invest, and place my orders. The whole thing could probably be done in less than an hour.
The only problem with the approach above -- and it's a big one -- is valuation. The majority of the investments I have today are ones I'm happy to hold, but I'm not necessarily eager to purchase more. For example, at today's prices I have no problem adding to my position in Hidden Gems pick AlderwoodsGroup
The next natural step is deciding how to allocate the money among investments. As this money is for retirement and I can't touch it without penalties for 30 years, I'll be investing close to 100% in stocks. Across both this retirement account and my taxable account, I plan to keep a little bit in cash for those special occasions when the market hiccups or for the next nasty bear market.
The next decision is what type of stocks to invest in. As a general rule, I look for value in my investments, though I do take the occasional flyer on a growth company or a company that I believe is turning the corner to profitability. With that in mind, I'll be targeting a general breakdown that looks like this:
- 60%-80% value and income-producing investments
- 10%-20% speculation and growth
- 10%-20% cash
If, over time, a couple of investments grow so large as to throw these ratios out of whack, I'm not going to worry about rebalancing right away. The above percentages are just simple guidelines to keep me on track. I'm also not going to have strenuous market cap requirements for each category. I happen to believe that value and income can come in large packages like Microsoft
For me, this is the part that is the most fun. Learning about companies, what makes them tick, their valuation, and then finally putting my money to work in those that passed muster. To do this, I plan to lean heavily on our newsletters for ideas. Our newsletter advisors spend a great deal of time vetting investments before they make their official picks. To ignore the information that our own analysts provide and simply go it alone would be foolish (with a small f). If I were successful on my own, it would be great for the old ego, but I'm in this to make a buck, not boost my self-esteem.
That said, I also plan to work my way through a list of companies that I have been watching from a distance but haven't had a chance to properly research yet. Primarily these are small- and micro caps. The first few on the list that I plan to look at are Aspect Communications
Foolish final words
The aim of building this portfolio is to beat the market. But it also needs to be fun and relatively stress-free. In my case, that means it will take months, and I may even miss out on an idea or two. I'm OK with that. In the past two months, I've already watched personnel management service provider (say that three times fast) Administaff
Every Fool knows it's never too late to plan your investment strategy with an eye on the future. For help in assembling a portfolio that will serve you well in your retirement years, try a risk-free trial subscription to Motley Fool Rule Your Retirement . It's on us.
Nathan Parmelee saved his circa 1995 T-shirt from the trash. He owns shares in Alderwoods and 7-Eleven, but has no financial interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.