My 401(K): What Next To Buy, And Why? - May, 2013

 |  Includes: HDV, REM, XLU
by: J.D. Welch

If you've been following this series, you'll notice that the last time I wrote about managing my 401(K) was this past April. That's not a mistake; while in the past I had been making purchases of new shares of an ETF every two months, on account of having four pay periods' funds accumulated, because of the modest increase in my salary and (more importantly) because I increased my withholding for my 401(K) from 5% to 6% every paycheck, it has become viable for me to use the accumulated shares from every three paychecks to make an ETF purchase. By that I mean that the amount that accumulates in three paychecks is enough that the $7.95 in commissions that Fidelity charges me for each transaction doesn't hurt enough for me to wait until I've got four paychecks' withholdings accumulated.

Once again I've decided not to add to the number of positions in my 401K, but to keep things simple and continue to add to what I already have. The amount that accumulates in three paychecks' time isn't attractive enough to justify a new ETF position, at least not yet, so I'm sticking with this plan for a while. As a recap, here are the three ETFs and one mutual fund that I currently hold in my 401(K):

  • iShares High Dividend Equity Fund (NYSEARCA:HDV)
  • iShares FTSE NAREIT Mortgage Plus Capped Index Fund (NYSEARCA:REM)
  • Utilities Select Sector SPDR (NYSEARCA:XLU)
  • Yacktman Focused Service Class (MUTF:YAFFX)

As a refresher, what happens to new money coming into my 401(K) account from payroll withholdings is that I have Fidelity put 25% directly into YAFFX, and the other 75% goes into a cash account waiting for me to redistribute it to one or more of the three ETFs.

Here's how things looked back at the beginning of April, when I last reported on this account:

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And here's how things looked as I write this:

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(Those of you paying attention will note that I've changed this display up a bit. I've dropped off the "First Purchased" column in favor of adding "YTD Return" (which I finally found on Fidelity's highly unorganized ETF pages) in order to give you an indication of how well each position has been performing (or not). By way of comparison, as I write this the S&P 500 (NYSEARCA:SPY) has a YTD return of 16.05%. Also, the "1 Year Return" and "3 Year Return" figures are calculated and reported quarterly by Fidelity, so no change in those numbers between last report and this one.)

This time around it's been a bit of a mixed bag in terms of results since I last reported. HDV and YAFFX have improved, while REM (and mREITs in general) has taken a bit of a beating in recent weeks. Utilities, as represented by XLU, have also dropped a bit, but XLU's Marco Polo XTF Rating has improved significantly. REM's Marco Polo rating, on the other hand, has dropped quite a bit, but I've found that this can be very volatile, especially in the case of REM.

The last time I reported on managing my 401(K) I picked XLU to add more shares to, as it was the position that had the lowest percentage allocation of my account's total value. This time around, due in no small part to the drop in its value compared to how well HDV has fared, REM was the lucky winner, and ended up having the lowest percentage allocation of the account's total when I decided to put the accumulated cash to work. So REM got a 26.60% bump in the number of shares that I now hold, which (along with Fidelity's commission) used up all but $0.49 of the available pool of funds. Yeah! Let no dollar go un used!

This leaves HDV as clearly having the lowest percentage allocation at 22.14%, compared with REM's 25.46%, XLU's 25.78% and YAFFX's 26.62% allocation. That means that it's more than likely that I'll add the 75% of the next 3 paychecks' withholdings of funds to HDV; but who knows what the market will do between now and then, so look for a report from me in about a month and a half on what I decide to do with those funds, and how each of these positions is holding up in whatever state the market will be in at that time.

Disclosure: I am long HDV, REM, XLU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: I am not a professional investment advisor or financial analyst; I’m just a guy who likes to crunch numbers and can make an Excel spreadsheet do pretty much whatever I want it to do, and I’m doing my best to manage my own portfolio. This article is in no way an endorsement of any of the stocks discussed in it, and as always, you need to do your own research and due diligence before you decide to trade any securities or other products.