My Investment Portfolio Details - Part 2

In my previous post on my portfolio details, I provided details on the accounts and funds I hold. In this post, I wanted to provide details on some of the funds and why hold those.

If you are new to this blog, you should know that I believe in the buy and hold approach to investing. I believe that if you hold quality funds, you should not need to sell your funds for a long long time. You make money when you provide ample time for companies to grow and also when you let your dividends compound over longer periods of time. Both these factors account for your returns on your investment. Many people are simply worried about the growth of their funds, but trust me, dividends is a hidden gem that contributes to your ROI.

I hold S&P 500 because it comprises of the largest 500 companies in the US by market capitalization. S&P 500 index is used as a barometer for the health of the US economy. So, holding this fund allows me to grow (and shrink as well) along with the US economy. In short, I get to ride the market ups and downs along with this fund. Since I believe in buy-and-hold approach for the long term, I am not worried about the performance of this fund because over longer periods of time US economy has grown one way or the other.

I hold Large Value Fund because it allows me buy some of the large companies' stocks at cheap prices.  This is almost like getting a discount. Also, another reason is that larger companies can withstand market downturns during recessions much better than smaller companies. Also, value oriented companies tend to return their profits in the form of dividends than growth oriented companies.

I hold a couple of Small Cap funds - Value & Growth funds. Generally speaking, smaller companies have good growth potential because they are just starting out. Remember that companies like Google or Amazon were once smaller companies before they become bigger. With that said, not every small grow bigger or even survive in the long term. That is why diversification is crucial in any investment portfolio.

I hold a Real Estate Investment Trust (REIT) fund. There are two primary reasons. One, REIT funds distribute 90% of their income through dividends. This provides a steady stream of income. Second, holding REIT fund allows me to invest in real estate market without physically buying any property and becoming a landlord. Also, since the real estate market tanked in 2008, this provided the opportunity buying REITs at depressed market prices.

I hold three International funds - International Value, Developed Markets, and Emerging Markets. International Value funds provides the opportunity to buy large international companies at discounted prices. Also, developed markets fund allows me to invest in developed countries and ride out their growth. As Europe is currently beaten down by investors, these two funds allow to buy stocks at clearance level prices. I know, sooner or later, Europe will resolve its issues. Lastly, Emerging Markets provide the growth opportunities. This fund is volatile, but buying this fund in moderation dampens the downward spiral. In summary, these international funds provide me with diversification needed for the global economy.

Apart from these, I hold a few more overlapping funds such as, Total Stock Market, Target Retirement, Energy Select Spider, and Birkshire Hathaway. I only hold these funds because I want gain additional exposure to specialty stocks or because the lack of fund options forces me choose these good funds at the expense of some overlapping, which frankly I don't mind.

I hope I have provided you with some of the reasons behind these funds.