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The ETF’s In My Rollover IRA

By Erik Folgate

Back in October, I left my day job to help my wife pursue a career as a physician assistant in childhood neurosurgery. We moved to Orlando, and even though I worked out of my house, I had a specific territory that I covered as a claims adjuster, and I was unable to transfer to the Orlando area. So when I left, I transferred my beaten down 401(k) money, which lost about 35% in 3 months, to ING’s rollover IRA through Sharebuilder. I liked the dollar-cost averaging investment incentives that Sharebuilder offered, but I did not do enough research about what products they offered to purchase through their brokerage firm. They only offer ING mutual funds, which discouraged me. So, I started looking into ETFs.

My wife and I will be opening Roth IRA’s with Vanguard soon, so I am going to treat this rollover IRA as an investing experiment, since the amount of money in it is not great.

A refresher on Exchange Traded Funds

Exchange Traded Funds or ETFs, are a collection of stock or bond holdings that trade in real-time like single stock securities. They look like mutual funds, but they act like single stocks. A couple of advantages they offer are very low expense ratios, the ability to invest in an entire market sector or stock index, and flexibility to buy and sell. Some disadvantages of them are that they are unproven, they don’t always go up or down corresponding to their index or market sector, and they are a little more volatile than proven mutual funds.

My Investing Strategy Experiment

Since the market is down so much right now, I figured that I would spread the money across six different ETFs in markets that took big losses in the past year. Here are the ETFs that I currently hold in my rollover.

  • XLF: this fund tracks the financials market sector
  • XLE: this fund tracks the energy market sector
  • IGE: this fund tracks the natural resources market sector
  • IVV: this is a fund that seeks to mirror the S&P 500 index
  • VIG: this is a Vanguard ETF that seeks dividend appreciation by targeting companies that offer the highest dividends. I will probably buy a bond market fund at some point. VIG and the bond fund will act as hedges when the market is volatile.
  • IYR: this is a fund that tracks the performance of various companies tied in with the real estate industry

I am definitely lacking an international position, so I will probably by another ETF that tracks either the global market or select foreign markets. All of these stocks have expense ratios under 0.5%, and I believe they are extremely undervalued. It’s definitely a risk to go with market sectors that have rain clouds over them right now, but we will see what happens. Keep in mind that I don’t like any of the mutual funds that Sharebuilder offers, which are mostly ING mutuals. For your own retirement account, I suggest low cost, no load mutual funds and index funds. Vanguard and T. Rowe Price are very good at offering these funds with good track records. I DO NOT suggest investing entirely in ETFs for your primary retirement or brokerage account. But, allocating 10 to 15% of your portfolio to some good ETF’s could be good for better long-term growth and returns in your retirement account. Vanguard has VTI, which is an ETF that tracks virtually the entire stock market, so you can have some GREAT diversification in your portfolio. Do your own research and start looking up different exchange traded funds. You will find that they offer good ways to target certain areas of the market and proven stock indexes at a low cost.

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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  • http://weakonomics.com the weakonomist

    Glad to see you toss in an REIT in there. I was thinking as I was reading this a good experiment would be to include real estate. Good luck and keep us informed on how it goes.

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