If you’re new to SMI, you may be wondering if you can implement the Fund Upgrading strategy in your 401(k) or 403(b) workplace retirement plan. The answer is: “Yes” — although doing so likely will require the aid of our online tool, the Personal Portfolio Tracker.
Upgrading involves investing in funds demonstrating strong momentum, and then, when those funds begin to lag, replacing them with better performers. The strategy works best when an investor has access to enough funds to be able to replace laggards with leaders.
Almost all workplace plans present challenges for Upgraders. Most, for example, don’t provide access to exchange-traded funds (ETFs), even those plans that offer a wide range of investment options through a “brokerage window.” Other plans provide just a minimal menu of investment options, giving investors little to choose from. Fortunately, the Tracker offers help for would-be Upgraders in either situation.
Based on your risk tolerance and season of life, first determine how much of your Upgrading portfolio to allocate to stocks and how much to bonds. For Upgraders, this “asset allocation” decision is crucial. Use the guidelines in the “Start Here” section of the SMI website, along with the Fund Upgrading Calculator.
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