Reopened Fund: Dodge and Cox Stock

If you've been lusting to get into one of the best actively managed value mutual funds in the business, now is your chance! A lot of folks are staunch index-only investors, however, if you want to walk a little on the "wild side" and pick an actively managed fund, you won't find a more solid example than D&C Stock. It's been in the business since 1965, and its managers have an average tenure of almost 13 years. Dodge and Cox Stock's expense ratio is a mere 40% of the average for large value funds at 0.52% vs 1.30%. Since expenses cut into your returns, a smaller expense ratio gives you a leg up toward outperforming the competition.

While last year D&C Stock had an approximately 25% turnover ratio, the fund regularly has turnover ratios of <12%, indicating an average holding period of over 8 years. This means that the Stock Fund not only doesn't chase performance, it also makes it a good option in taxable accounts, where high turnover ratios have negative tax implications.

Past results are no prediction of future performance, they say, but the Stock Fund's trailing 20-year average return after expenses and fees is over two points higher than the S&P 500 index, with a Beta of .87 and an 3-year R-squared of 85. In plain English that means $48598.38 more in your pocket after 20 years on $10,000 invested, with less risk than an equivalent, no expenses index fund. Pretty remarkable.

Dodge and Cox Stock's investment in large, well established stocks makes this fund an ideal candidate to be included in your "core" investment strategy. Be aware though, that this fund does have a significant stake (nearly 20%) in foreign stocks, so if you do include it in your portfolio make sure that you don't end up with an oversized bid in foreign equities relative to your target weighting.

Name: Dodge and Cox Stock
Ticker: DODGX
Category: Large Value
Min Investment: $2500 [$1000 for IRA's]
Expense Ratio: 0.52%
Load: No Load

You can see the announcement for the fund's reopening, as well as the Balanced Fund here.

Full Disclosure: I currently own shares of DODGX and DODFX. I am not a financial advisor. Please read the fund prospectus and other information before making any investing decisions.

Data taken from dodgeandcox.com and morningstar.com

Give Yourself a Raise! - You Deserve It!

Yesterday I got my paycheck with my new "raise": I just signed up for the Employee Stock Purchase Plan (ESPP). This is a benefit that some companies offer where you can buy company stock at a discount. In my case it is a 10% discount. The only way that you can do this however, is by having the company take a percentage of what I make directly out of my paycheck, up to a maximum of 15%. So you can see, since the company allows me to use 15% of my paycheck to purchase stock at a 10% discount, essentially I am giving myself a 1.5% raise! (Caveat: This assumes that the stock price remains the same - if the stock price rises, I would make more than this, if it goes down, well....you get the picture.) For a person making $50,000, 1.5% translates into $750 - not bad!

It took me awhile to do this however, because I don't (who does?) have a spare 15% in my paycheck to be taken out and not run short. So I have had to reserve money in a separate account dedicated to funding my ESPP. As money is taken out of my paycheck to buy the stock, I replentish my checking accounts from the reserve. Twice a year I will liquidate the stock in the ESPP account and replace the money in the reserve to start the process again! Doing this twice a year would mean I need to have an account with approximately $3750 to take advantage of the ESPP.

A lot of companies offer benefits like an ESPP, and even more offer company matches on 401(k) contributions. Consider it giving yourself a raise to take advantage of this free money. By fully utilizing a company match on your 401(k) contributions of 50% up to 6% of your salary, you essentially have given yourself a 3% raise (in addition to any taxes that you would defer.) Make sure you fully know what type of benefits your company offers, and then use them! A spare $750 or $1000 adds up to real money before you know it!

Asset Allocation - June 2007

I thought I would post on my current asset allocation. This view is really just an overall high level view, since I have chosen not to split out between my 401(k), pension and non-retirement accounts. In addition, some of my non-retirement funds are held directly with the mutual fund, as opposed to dealing with a brokerage (such as Zecco and Scottrade). One thing that makes things a little confusing is the fact that because I have different accounts (401k, non retirement etc), I have more funds than I really would like to have. For example, I currently have 2 foreign funds + my emerging market fund. This is because the offerings in my 401(k) aren't necessarily what I would pick. This is why I haven't provided more detail on the individual funds I own yet. I know there are options to request your company to let you have a self-directed 401(k) and that can be a topic of later discussion, but I really haven't had time to look into it yet.

Currently, it looks I have about 24% parked in stable value/bonds with the balance in various stock holdings. Actually, the percentage would probably be skewed more to stocks, except that I have included my company's pension balance in the stable value category, since the interest paid on it is pegged to the 10-year T-bill rate as of last September. Other than that, I think things are pretty straightforward. Of the stock mix, I have an approximately 40/60 split between US and foreign equities. While it may be somewhat chasing the hot idea, I feel that a significant exposure to foreign stocks will give me good returns, while being less risky than chasing sector performance. What do you think?

Why I'm not moving to Zecco (Yet)!

Zecco's 40 free trades/month has certainly created a stir in the blogosphere. Seems like everyone is making a post or three, so yours truly will also hop on the bandwagon. LazyManandMoney and others blogged when Zecco first opened with $2500 account minimums. In addition, MyMoneyBlog recently commented on creating the smallest all world portfolio containing 5400 stocks for just over $300 (as well as posted an insightful review based on his personal experience). SavingDiva and others have also posted letting the world know that a intriguing new alternative exists. BluePrint just posted an perceptive commentary on whether Zecco seems like a scam, with some great research.

I, however, am going to continue with my Scottrade account (for now). For a longterm investor, if you only have a couple of hundred bucks, $0 commissions certainly seems like it would be tempting. However, in the end, I think the more important lever would be making sure you pick good investments that you are willing to hold for more than a year - moving from paying taxes on short term capital gains to long term capital gains.

Example: For a $1000 investment gaining 20% in the 25% tax bracket, you'd save $20 (more than the $14 ($7 commission both ways) to Scottrade) just by holding on to your investment for a year rather than less than a year. If you think that you're burning up good ideas by not having a high turnover ratio, more power to you - and the thought is tempting - but it seems that Zecco is catering to more of a trading mentality rather than an investing mindset.

Keep in mind, also, that Scottrade allows you to buy and sell (most) no load funds for $0 commissions as well - I bought my emerging markets fund that way. $0 commissions on stock trades (effectively eliminating a 1.4% expense ratio on the example above) is rather tempting. Nonetheless, customer service and reputation are invaluable in the securities market, and the $7 commission seems like a small price to pay - although in time I think the playing field will level. Meanwhile, I'm going to stick with Scottrade for awhile while Zecco becomes established and works out some of their initial customer service issues.