My first decade or so with Boeing and their 401K plan, the Boeing VIP, I struggled with choosing which funds to invest in.  Boeing and their plan administrators offer a menu of funds, but they studiously avoid telling you which ones to invest in.  I suppose it's a liability thing, if they tell you what to invest in, they expose themselves to downside consequences.  Think 'Enron', and their being bullish on having employees keep their 401K investments in Enron stock.  This had disastrous consequences as employees not only lost their jobs, their 401K became worthless.  Enron is still dealing with lawsuits from former employees who followed the company's advice and lost all their savings.   I don't invest in Boeing stock at all.  It's not that it's a good or bad investment, it's that so much of my cash flow (salary and bonus) is already tied to Boeing.  God forbid Boeing goes under and/or I lose my job, my investments are a separate deal and not tied to the fortunes of Boeing.  It's simply one of the first aspects of diversification.

 

Paul Merriman is a Seattle financial consultant, and the 'grand old man' behind http://www.fundadvice.com/.  When I cast about for guidance on how to invest my Boeing VIP funds, I ran into Paul's site.  Paul offers advice on which funds to invest in for your Boeing VIP (as well as a slew of other Northwest companies' 401Ks).  For the most part, Paul's advice is logical, simple to understand, and in this case offered up for free.  As I said in another part of this website, I'm always searching in the investment (advice) world for what motivates the advisor, how does he make his money, etc.  In Paul's case, it looks like he is offering up this education for free in the hopes that as you become a more savvy investor and wish to invest funds outside of the Boeing VIP, you will think fondly of him and turn to him for compensated financial management advice.  I think it's a brilliant marketing tactic for him, though I continue to go it alone. 

 

When I first turned to Paul Merriman's site for advice (I think it was around 2000), he was heavily touting 'Market Timing'.  Market Timing has since gotten a bad reputation for a number of reasons, one of the most notable being arbitrage, or the practice of taking advantage of different closing times between foreign markets and US domestic funds, with certain fund insiders profiting on that 'point spread' to the detriment of the rest of the (outsider) holders of a given fund. 

 

Market Timing as practiced on http://www.fundadvice.com/ is a little more subtle (and slower-paced) than that which has generated all the bad press.  Stated simply, it's a more fluid management of your equity vs. bond (or equity vs. cash) position than the more basic 'buy and hold' approach.  In 'buy and hold', you reduce your risk in large part by selecting how much of your portfolio to place in the more conservative bond market.  If you're in your 20's or 30's, you might place 20% of your portfolio in bonds; whereas if you're in your 50's you might choose to place 50% of your portfolio in bonds for a 'buy and hold' strategy.  With Market Timing, if the market is hot and the timing signals are all 'go' or 'equity', you won't have *any* money in bonds.  As the signals flip (e.g. Sell: when the S&P 500 index falls 2 percent below the 150-day moving average), you move a portion of your investments in equities out of an equity fund and into a safer 'Money Market' or Bond investment.

Paul's current investment advice for Boeing VIP looks like this:

 

 

I chose the 'aggressive' portfolio, but I temper it with a layer of Market Timing:

 

 

The investment in the International Index Fund is constant, at 40%.  The domestic equities are 'Market Timed' according to the signals at  http://www.fundadvice.com/tools/hotline.html .  At this writing, System 2 and System 3 are both negative, so the 15% each that would be committed to Large Companies Value Fund and Russell 2000 Index Fund are instead parked in the VIP Stable Value Fund.   When those signals toggle positive, then I'll be back to a position of 60% in domestic equity funds and 40% in International. 

 

How has this worked out for me in the last 5-6 years?  Pretty well, I think.  It's been a real 'up and down' market, and this system has kept me moving forward, accumulating wealth, and not getting slaughtered in the big downturns.

 

Remember, I'm not an investing pro, and I don't like to spend an inordinate amount of time trying to figure this out and manage it.  Somewhere between 'invest and forget' and 'daily management' is what I'm striving for.  The Market Timing models on http://www.fundadvice.com/ are designed to generate trades roughly once a month or less.   The last half decade has been a little more interesting than that, but it's still a manageable level of activity.

In 2006, there's another wrinkle that Boeing and their administrator have thrown in: a 1.5% penalty for pulling funds out of most of their 'managed offerings' within 30 days of placing them in there. This is intended to discourage the basic strategy of 'market timing' that I am advocating. In January, I misread one of the historic bits of info and initiated a trade that violated the '30 day rule'. Lost a little chunk there, like 1.5% of 15% of my portfolio (0.225%, if I did the math right). In future, I'll have to watch the announcements and 'stand pat' till the 30 day window passes. 2007 update: the trading window has shortened to 15 days, but it applies to all funds, not just the managed ones.

 

Somewhere in my travels, I heard an interesting anecdote on investing.  The speaker was asking the audience to tell him 'your #1 asset'.   He got the usual responses like, 'My house', and 'My 401K'. 

 

After letting the answers peter out, his response was simple: Your #1 asset is your ability to earn $60,000 a year at your day job plus the benefits that come with it.  Never let your zeal for investments or any other activity screw that up until you are ready to retire.