One reader shares his favorite stock funds for investing in any stock market and how to balance out your portfolio

Today’s post is a PeerStory from Shannon Eding of California. Shannon read an earlier post on investing in Motif funds and wanted to share her experience with the website and her five favorite stock funds. Investing in the stock market has been rough lately with it looking likely that we’re in for lower prices so I thought the article was really timely.

Here’s Shannon’s story,

I came across your article on Motif Investing and wanted to share my experience with the site and share some of my favorite stock funds. I’m a teacher at a private school in California and have been investing in the stock market for ten years and have invested in Motif stock funds for a year.

Like most people, I started out investing in mutual funds through a retirement account option at work. I liked the diversification and lower risk but hated the high expense fees on the stock funds. I was paying a fee just to buy the fund, usually something like 5%, and then paying a management fee every year.

I was excited to hear about Motif Investing from a friend last year because it’s basically the same idea but without the high fees. Investors pay one commission to buy all the stocks in a fund and then pay no annual fees after that.

I spent a lot of time reading books on investing and personal finance when I was just getting started in stock funds and the stock market. Since the financial crisis, I’ve relaxed quite a bit and realized it’s definitely a long-term game. I invest in a few of my favorite stock funds and balance out my investments in different asset classes.

It’s not a portfolio that is going to make me rich overnight but I really don’t have to worry whether the returns will be there. I thought I would share my ideas with others and hope it will help anyone that reads them.

Stock Funds for Stock Market Safety

Floating Rate Bonds motif

I am a big believer in the safety of bonds. Maybe I should rephrase that, after two stock market crashes since 2000, I am a huge believer in the safety of bonds. They’re the slow and steady approach but also the sleep-at-night investment.

The Federal Reserve is on the edge of raising rates. Bond prices do not react well to rising rates because payments are fixed, making the fixed return less attractive. I hold most of my bonds to maturity and don’t have to worry too much about rates but it’s always good to have some floating-rate bonds as well. When interest rates increase, the rate paid on these bonds increases as well so prices don’t fall as much.

[Learn more about bond investing and the investments everyone should own but few do.]

The motif holds half its investments in investment grade bonds of high-quality corporations and the other half in bank loans. Bank loans tend to be shorter-term so also don’t react as much to rising rates as longer-term bonds.

Motif Stock Funds Bonds

American Bonds motif

This is my favorite motif for overall exposure to bonds. It isn’t going to make you rich but you’ll be glad you had it when the stock market starts going crazy. This investment, along with the other 55% of my portfolio in bonds, makes my wealth look more like a steady climb upwards rather than the jagged peaks of Everest.

The motif holds a quarter of investments in U.S. Treasuries, helping to keep volatility extremely low but not adding much to return. The rest of the portfolio is equally-weighted in Agency, Municipal and Corporate bonds which help increase return but add a little more risk.

Stock Funds for Stock Market Dividends

Office Space motif

This one is called “Office Space” but is really a diversified investment in real estate investment trusts (REITs). These are special companies that invest in real estate and don’t have to pay corporate taxes if they distribute at least 90% of profits to investors. Not having to pay taxes is always a huge advantage and real estate is one of my favorite investments.

The motif is spread out across seven different types of real estate including retail (26%), office (18%), hospitality (18%), healthcare (11%) and even one company that owns data warehouses for tech companies. The dividend yield can’t be beat and it’s a good long-term investment.

[Learn more about REITs and how to benefit from real estate investing without the hassle of owning property.]

High-yield Dividend motif

If I am going to own a company then I want to know that management is serious about returning profits to shareholders. You can keep your high-growth tech and biotech stocks, watching the returns fade away in the next selloff, I’ll be collecting dividends and booking a solid return.

Dividends have contributed nearly half (42%) of the return to the S&P 500 since 1930 and are the only real return until you sell a stock. The High-Yield Dividend motif invests in companies that have a ten-year track record for not cutting their dividend payment, a big vote of confidence especially given the number of companies that cut during the financial crisis.
Get up to $150 when you start trading at Motif Investing.

Stock Funds for Long-term Returns

BRICS Building motif

Stocks of emerging market companies have gotten hammered over the last year, especially those in the big four: Brazil, Russia, India and China (BRIC). Despite the weakness, the fact remains that the economy of these countries are growing twice as fast as that of the United States. Everyone needs international exposure in their portfolio and investing in exporting companies in the S&P 500 just doesn’t cut it.

The motif holds most of its investment in Chinese companies (65%), followed by Brazil (18%) and India (10%). It holds minor investments in Russian and South African companies for a little more diversification. I don’t mind the lower exposure to Russia because I’m not a fan of how the government controls the capital markets.

The one-year return on the motif is absolutely horrid but I think these companies will rebound big time over the long-term. Like it or not, there’s a reason why they call them ‘emerging’ markets and they are going to be getting bigger. I’m not worried about how it does one year to the next but am going to be around for big returns over the next 20 years.

Stock Funds for any Stock Market Investing

Notice I didn’t highlight any general stock funds above, these are just my five favorite stock funds that you might not otherwise know about. I also hold stock funds in the S&P 500 and in an index of international companies to balance out my portfolio.

I want to thank Shannon again for her PeerStory and sharing her favorite stock funds with us. I just opened my own account on Motif Investing and will have to look further into the funds she’s holding. I see a lot of my own investing strategy in hers and think the long-term perspective on the stock market is probably the best…and definitely the least stressful.

If you’ve got a PeerStory about a personal finance challenge or success, or just want to share an idea with others, please contact me through the site or by email.


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