Eileen's picks

My "system"

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Diversification across asset types is the foundation of the system I use, and, since suffering for getting caught up in the technology boom as I was learning to manage our own retirement money, I now set a "percentage of portfolio target" for each asset type and NEVER allow any type except cash to exceed its target by more than 5% without serious review, and selling it down when it hits 10%.

For the Open, I've set targets at 40% in US equities, 30% in foreign, 6% in real estate, 9% in commodities and 15% in "safe stuff".

Bianca and I treat our model portfolio like a farm: we "plant" a variety of "crops" (asset types) and we "harvest" the amount a category is over plan by selling the overage amount from the weakest performer in the winner category (for example selling some or all of the lowest performing stock that is a US equity). Then we "plant" that amount in the best candidate we can find in a "loser" category.

When things seem "too good to be true", we do extra harvesting. Bianca has experienced a lot of economic uncertainty in her short life, and she watches closely for when we should be storing away our gains.

The rules of the competition pose a challenge when it comes to asset allocation. Normally our real estate allotment would go half to US real estate through a solid diversified mutual fund like TAREX or an exchange-traded fund like ICF and the other half to foreign real estate through a fund like FIREX or DRW. Since mutual funds can't be used at all, there's a tight limit to use of exchange-traded funds, and Bianca's interest in real estate is limited to the hope of having a down payment for a house of her own one day, I decided to go with a stock that has been a strong dependable performer in my personal portfolio to represent that category even though it isn't strictly speaking "real estate".

Brookfield Asset Management Inc. (BAM) is a global asset manager focused on property, power and other infrastructure assets with over US$75 billion of assets under management, which are primarily in Canada, the northeastern United States, England, and Brazil. They own and manage office properties, residential developments, and hydroelectric power plants.

Unfortunately, on Friday, other investors also decided to classify it as "real estate" and it took a beating at the end of the day. Would that I had waited to purchase using the target entry point I set! Nevertheless, I believe BAM is going to make a reasonably rapid comeback. Only about a quarter of the company's assets are invested in real estate, 90 per cent of which is invested in commercial properties, and the 10% that is in residential properties is held largely outside the United States.