Eileen's picks

Family/Bicycle Trust Portfolio

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Have you seen what Ken Kam has written about the multi-generational trust he and his wife have created? He has an approach to providing support to future generations you may find interesting.

Since my father died, I've been responsible for keeping track of how the investments in our family's three generation trust are doing and making recommendations on what to buy and sell.

I enjoy knowing that what I'm doing is putting "wind in the sails" of the dreams and aspirations of the family, but agonizing over what type of investment to buy and how much to invest in any given investment is - well - agony.

To minimize the pain, I've developed a "diversification across asset types and more" system that answers most of those questions for me more or less automatically.

I've approached my SLO portfolio as though it too belonged to a family trust. My "Little Sister" Bianca, who's helping me with stock picks and with teaching a "101 of investing" class, represents the younger generation, and we're using the same diversification system.

Before the competition began, we set asset type percentages: 40% in US equities, 30% in foreign, 6% in real estate, 9% in commodities and 15% in "safe stuff". Now the November-December rally period is near, we've done our annual "shift out of safe stuff" adjustment, and increased foreign to 35%, real estate and commodities to 10% each and dropped "safe stuff" to 5%.

Instead of waiting for the calendar to tell us to re-evaluate, we decided to use a "down" day before the Fed announcement to assess and make purchases. That happened yesterday.

Here's what the assessment showed: we are $188,568 low in US equities, $56,387 low in foreign equities, $112,870 low in real estate, and $9,544 low in commodities, and, of course, that much high in cash, having salted away gains from foreign equities since mid-September.

It also told us we were $136,858 under plan in large cap, $200,080 under in mid cap and $30,430 under in small cap. We're doing fine in value investments, but need $31,222 more in core/blend and $283,586 more in growth.

Armed with that information and the research we've been doing over the last couple of weeks, Bianca and I made purchases that bring us close to plan. We are reserving $25,000 in PowerShares DB G10 Currency Harvest Fund, a cash-equivalent exchange-traded fund that has gained more than 7% since we bought it. We want to see what happens with our current purchases before we do any final buying.

I'm doing the real family trust assessment early too, but for a different reason: it's the anniversary of the start of my management of the trust, and I'm meeting with my mother in Florida to celebrate, so it will be a week until my next post. Bianca and I will tell you then what we bought and why.