My 401(K): What Next To Buy, And Why? - December, 2012

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

This is a continuation of the series I started with the article "My 401k - Exchanging a Mutual Fund for ETFs". My, how time flies! It's already been two months since the last installment of this series, and I'm ready to make my next purchase. Question is, what next to buy, and why should I buy it?

At this time I've decided not to add to the number of positions in my 401(k), but to keep things simple and just plump up what I already have. As a recap, here are the three ETFs and one mutual fund that I currently hold in my 401(k), along with some relevant data:

  • 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)

(Click to enlarge)

Like pretty much everything else on the market, my 401(k) took a big hit with the results of this past election. But, things could be a lot worse, and I like to look at down trends in the market as presenting me with buying opportunities.

So where to put my current allotment of accumulated cash next? Looking at the data above, my choice is going to be based on which ETF has suffered the greatest loss based on my cost basis, and therefore represents (to my way of thinking, at least) the best opportunity to lower that cost basis and maximize my investment dollars by buying the most shares possible relative to the shares previously bought on a dollar-for-dollar basis.

So this time around, I'll be adding my two month accumulation of cash into XLU. That will bring its % allocation of my 401(k)'s total portfolio up significantly compared to HDV and REM, which will probably mean that I won't be adding to XLU again in two months, but you never know; we'll have to see how things stand then and decide where to distribute the next batch of cash.

One a side note, I've discovered that the dividends that I received for REM and XLU back at the beginning of October were DRIPped back into those accounts, rather than landing in my cash holding pen. I don't recall selecting the option to DRIP the dividends in this account, but in this case I think I'll allow that to continue so as to automatically re-invest future dividends into the ETFs that generated them, which will naturally compound their growth.

That's it for this My 401(k) report. Things are progressing quite well, from my perspective; at the very least, I'm saving more for retirement than I was a year ago and don't feel the pinch from the 5% currently being withheld from the gross of every paycheck.

Best of luck with your savings and retirement plans! Please feel free to comment below.

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.

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.

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