Roth 2010

Last year I put my Roth contribution into Fidelity Contrafund, a large cap growth mutual fund. It did pretty well, returning about 26% on the year. But in late March it seemed sluggish so I took some out and put it in the peppier Fidelity Small Cap Growth fund which turned out to be a good move since it has gone up 51% since then vs. Contrafund which was up “only” 36% since that time.

If 2009 trends continue, then small caps will continue to outperform large caps and international funds will do well (I put some money into Vanguard’s emerging markets index last year and holy cow! 70% gain). But I looked at how my Roth funds are allocated now and I feel like I have a lot of representation from small caps already, so I think I will put some money in large caps and hope they have a good year. I tried to see what sectors underperformed this year, thinking they were due to do better next year. Some of the big tech companies haven’t done as well and biotech didn’t do very well. So I was thinking that I might try out Vanguard’s FTSE Social Index fund again which has pretty big positions in tech, health care, and financial companies. Maybe those will do pretty well, so I was thinking I would put $4k of the 2010 IRA contribution there and then throw the remaining $1k I’m allowed to contribute at Vanguard’s Total International Index to give me a little more foreign diversification.


Well, maybe not. It is interesting that right now a lot of the top ten holdings in the FTSE index and Contrafund are the same (Google, Apple, Gilead, JP Morgan Chase, and McDonalds). But FTSE has a 1 star rating from Morningstar while Contrafund has 5 stars. I think most of this is because Contrafund didn’t lose as much money in 2008 as most others and FTSE had a lousy year in 2007 after which I sold it. Both funds are large cap growth funds. So now I am thinking I will put money in Contrafund. The only problem with that is it will take a little longer to transfer those funds from Vanguard to my bank account to Fidelity. So instead I will put $2k in Vanguard’s International Index which I can transfer directly from another non-IRA Vanguard account at the closing price on January 4. And I will take $3k out of my credit union account (that’s about all I have there, drawing 0.8% interest, but I can get to it faster than my Vanguard funds), deposit it, make a contribution to the Fidelity IRA (which goes directly into my cash holdings), then place an order from cash holdings into Contrafund the same day.

Six years of contributing towards the Roth IRA hasn’t worked out great so far, but last year I was down $6,000 and now I am down less than $100. The good part of that is I can withdraw all of the money and pay no penalties since penalties only apply to the gains.

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