Tentative Portfolio Allocation Targets

Now I'm looking at the capital allocation between stocks, mutual funds, etc. Here is the breakdown that I'm currently considering:

• 45% - Stock Portfolio (about a dozen top stock picks)
• 30% - International Mutual Funds
• 10% - Domestic Mutual Funds
• 5% - Speculative and merger arbitrage trading10% - Cash

It is definitely on the aggressive side, but I figure that good research takes away a good portion of the risk and long-term investment outlook (well, with the exception of speculative and merger arbitrage trading) further mitigates the risk. I feel pretty comfortable researching stocks and I think I'm not too bad at researching mutual funds either. I've researched and picked a handful of mutual funds last fall and they have all performed well even though their focus is varied.

Domestic mutual funds are meant to complement the stock portfolio, which represents a mostly domestic exposure. Domestic mutual funds that I'll be looking at will most likely have a relatively concentrated portfolio of mid-caps and small-caps with unorthodox investing strategy since I don't want a fund following the small-cap index, which isn't expected to perform too well now.

International mutual funds will diversify the overall portfolio to make sure I'm exposed to the global market gains. This is somewhat of a hedge against the U.S. economic slowdown.
Speculative and merger arbitrage trading are meant to ennhance the overall portfolio performance. It is to take up only 5% of the portfolio because it is risky and it is also meant to teach me more about markets as I make these trades. You could a call it a "play money" portfolio segment, but money is money and money involved in the speculative trading are just as valuable to me as money in the mutual funds or the stock portfolio.

And cash is there as the backup funding for additional market opportunities. For example, if Bank of America were to tank on the news that it will writing off gazillions of dollars at the end of the fourth quarter, I could use that backup money to pick up the pieces being 100% sure that the company will rebound soon enough.

I might replace some mutual funds with ETFs, depending on how long-term I will be choosing the mutual funds for. We'll see about that. With a 100 free trades from Firstrade, it is that much more tempting to use ETFs.

Signing up for Firstrade / Trading Plan Update

So, I've signed up for the Firstrade individual trading account yesterday. It will a few days before I can do any trading since it takes about 5 days for ACH bank transfer to complete. I think it's a good idea sign up for an account sooner rather than later if you're expecting to make trades in the near future even if not necessarily today or tomorrow because it does take a while for account to become active. Also, if you choose to go with the Firstrade, and sign up before the end of 2007, you will get 100 free trades. That is only $695 worth of trades ($6.95/trade x 100). If it wasn't for the promotion, I was strongly considering signing up with Tradeking which has $4.95 trades.

I have not explored the account options in detail yet, but I was pretty happy to see the S&P stock and fund reports and various market commentaries/analysis. Those additional research sources will work well in conjunction with the Morningstar analyst reports.

Once the account is set up, I will check S&P reports on my top picks so far and if I find any interesting and/or significant points, I will post them here.

So far, I have not been punished for my delay in buying the top picks. Most of those picks lost a few percentage points in price and only Medtronic and Coach are making an effort to upset me a little by their gain of 6-8%. I'm not worried about those two too much though: if you look at it short-term, there is a good chance that they'll go down again and I'll buy them at same low price that I analyzed them at; or, if you look at it long-term, they're still a large upside to both of them, so there is still plenty of gains to be made.