ASK KIM


Simple Investing

Kimberly Lankford

I\'d like to move $115,000 from index and life-cycle mutual funds to a mix of actively managed and exchange-traded funds. Should I invest in a lump sum or gradually?



I'd like to move $115,000 from index and life-cycle mutual funds to a mix of actively managed and exchange-traded funds. The ETFs have lower management fees, but I'd have to pay an $8 commission each time I bought or sold, and the commissions might offset the savings. Should I invest in a lump sum or gradually? I'm also considering buying put options to mitigate sudden drops in the market. My time horizon is ten years.

You're making investing a lot more complex than necessary. Gradual investment is a risk-reduction tool for those who hold a large amount of cash and want to enter the stock market over a period of time. But you already appear to have most of your $115,000 in funds that invest primarily in stocks.

If that's the case, there's no need to invest gradually in ETFs, which are mutual funds that copy indexes and trade on exchanges just like stocks. And buying each ETF with one trade will minimize those pesky brokerage commissions.

As for buying put options to hedge against drops in the market, good luck. What you're really trying to do is time the market. Most people, pros and amateurs alike, can't do that consistently enough to make it worth their while. Puts can provide insurance against declines, but it's expensive insurance, and you can easily lose the money you pay for the options.

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With a ten-year horizon, the bulk of your assets should be in stocks. If you want to reduce risk, move a portion of your assets to a bond fund, such as Harbor Bond (HABDX) or Fidelity Floating Rate High Income (FFRHX). Or see our list of the 25 best stock and bond funds you can buy without paying a sales fee.

Got a question? Ask Kim at askkim@kiplinger.com.




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