Roth 2012

Last year after Europe seemed to have been hammered pretty well, I decided to put my 2011 Roth IRA contribution in Vanguard’s Total International Index. This turned out not be so great because Europe continued to have problems and a tsunami clobbered Japan. US stocks (where the rest of my money is) stayed about the same, but it was a roller coaster ride.This year I thought it would be good to pick some sector that didn’t do well last year that is due to do better this year. In my brokerage account where I usually play around with tech stocks, this past year I was doing more with banks and financial stocks. Goldman Sachs, Bank of America, and SunTrust have all had rocky years with their stocks going way down and sometimes recovering. The tech stocks held pretty steady for the most part. Right now the financials are down again, so I looked at Fidelity’s list of sector funds and noticed that the financials pretty much did the worst, losing 20% or more last year, while the S&P 500 broader index was about even.

It seems like banks are due for a recovery and, if so, maybe they will bounce back stronger than the rest of the market. They also have a sector fund that is just banks, but it did a little less badly last year, so I think this year I will throw my IRA contribution into Fidelity’s Select Financial Services fund, whose top two holdings, Citigroup and Bank of America, were down by 50% this past year. Certainly those are companies that are too big to fail and due for something better. But I was wrong last year. The rest of the money stays where it is, spread out among small cap, large cap, and international funds. My plan is to use the sector fund only for a year or less and then move that money into those other funds.

2 thoughts on “Roth 2012”

  1. This week was really good for banks. On Thursday, Suntrust and Bank of America were up over 2%. So I thought FIDSX would be up 2% as well. Instead it went up 1.5%, about the same as the rest of the market. I checked out the current holdings and there weren’t as many banks and financial companies as I thought (though Fidelity has another sector fund more for banks). A big chunk of the fund is actually invested in real estate investment trusts. Up 20% on the year, I figured I would go ahead and sell, lock in the tax-free gains, and put the money in something more conservative like a short-term corporate bond fund. However it turns out Fidelity doesn’t have anything specifically like that, but they have some pretty good high yield bond funds. Those are kind of crazy, investing in junk bonds and mortgage-backed securities, but they also yield about 6%. The share price has been fairly stable, so I thought I’d try that out once the order clears.

  2. The high yield bond fund (FAGIX) has done okay, but the price fluctuates a lot more than a short-term corporate bond fund like Vanguard’s VFSTX. However, the yield is also around 5-6% instead of 2%. FIDSX’s price is just below what I sold it for in September. I think next year’s contribution might go towards Vanguard’s Small Cap Value fund. I already have some money in that fund, but not enough to get upgraded to their lower expense Admiral shares. So I think I’ll do that in January, and hopefully the fiscal cliff mess will be nearly resolved at that point (or the fear and panic will at least be at its highest!).

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