Monday, June 20, 2005
The Objective of the Prudent Portfolio
FMF posted a comment to this post. He makes some good points so I'll address them here.
Objective for the Prudent Portfolio
The objective of the Prudent Portfolio is to outperform (after fees otherwise you'd do better simply buying an index fund!) the S&P 500 Index by buying stocks in the index that are undervalued based on P/E ratios, dividend yields, and other value measures (I can't divulge all my secrets). The stocks will be chosen once per year, with the exception of this year when I will rebalance in late December in order to put the portfolio on the calendar year.
Rebalancing (criteria for selling stocks)
By rebalancing, I mean that I will run my value screens and make adjustments based on those results. If a stock is not listed on the new value screen, it will be sold. In most cases, stocks will be held a year. In some rare instances, I may sell a stock mid-year if I feel it is necessary. However, the Prudent Portfolio is not a day-trading portfolio. Rather, I want to focus on long-term growth.
Stock Selection
As I stated earlier, stocks will be chosen using a value screen. If I run the screen and no stocks appear undervalued, no stocks will be chosen for the year. This is an unlikely scenario but if it should occur the market as a whole would be "overvalued" in my opinion and it would be smart to stay away.
Fees
It is my goal to make this portfolio as realistic as possible. Therefore, I will include fees in my calculations. The fees will be as follows:
As the portfolio grows, the fees will decline, based on the following schedule:
Objective for the Prudent Portfolio
The objective of the Prudent Portfolio is to outperform (after fees otherwise you'd do better simply buying an index fund!) the S&P 500 Index by buying stocks in the index that are undervalued based on P/E ratios, dividend yields, and other value measures (I can't divulge all my secrets). The stocks will be chosen once per year, with the exception of this year when I will rebalance in late December in order to put the portfolio on the calendar year.
Rebalancing (criteria for selling stocks)
By rebalancing, I mean that I will run my value screens and make adjustments based on those results. If a stock is not listed on the new value screen, it will be sold. In most cases, stocks will be held a year. In some rare instances, I may sell a stock mid-year if I feel it is necessary. However, the Prudent Portfolio is not a day-trading portfolio. Rather, I want to focus on long-term growth.
Stock Selection
As I stated earlier, stocks will be chosen using a value screen. If I run the screen and no stocks appear undervalued, no stocks will be chosen for the year. This is an unlikely scenario but if it should occur the market as a whole would be "overvalued" in my opinion and it would be smart to stay away.
Fees
It is my goal to make this portfolio as realistic as possible. Therefore, I will include fees in my calculations. The fees will be as follows:
| Annual Fee | Quarterly Fee | |
FOLIOfn | .40% | .10% |
PrudentPortfolio | .65% | .1625% |
Total Fees | 1.05% | .2625% |
As the portfolio grows, the fees will decline, based on the following schedule:
| FOLIOfn Fee Schedule | Annual Fee |
First $250,000 | .40% |
Next $250,000 | .30% |
Above $500,000 | .20% |
| Prudent Portfolio Fee Schedule | Annual Fee |
$100,000 to $499,999 | .65% |
$500,000 to $999,9999 | .55% |
$1,000,000 to $1,999,999 | .45% |
$2,000,000 to $4,999,999 | .35% |
$5,000,000 and Above | .25% |
# posted by JLP @ 11:02 AM 
