I have just over 11% of my portfolio in PRNEX.  I often read these articles about how energy stocks, etc. have had this nice run and now is not the time for getting in, etc. 

In general, I'd like to have a portfolio of funds that can remain there for the long-haul.  Is PRNEX one of these or should I take the gains and look elsewhere?

If I had my account at TRP, PRNEX is one of funds I would hold for long term. Most of NR funds did better than S&P during the last 9 years (only very selected funds did better in 1998). NR is the bottom of the food chain. Another TRP fund I like to hold for long term is PRLAX. KM

Disclaimer: I don't own neither but I own other NR and LA funds. 

Those who trade funds may view now as a good time to take a profit.  Those who set a target allocation for funds may discover that the current value of their natural resources fund accounts are above the target allocation.

I started investing in PRNEX about 10 years ago.  Recently,  I have redeemed shares to bring the account back to within the 4% to 6% asset allocation range that I have for it.

invest4,

Only you know your own risk tolerance, but your 11% allocation is kind of high, IMHO.  I think many people would agree with Pat Morgan's previously mentioned range of 4 - 6% for sector funds.  There still could be a lot more run on the up side with Oil/Gas/Natural Resources, but I wouldn't think they will rise forever.  The Global Growth story could perpetuate that rise.  But every time I hear those words "This Time It's Different", I begin to throw up warning flags.

Coy 

invest4,

Put me in the camp with the others recommending 5%. I would look at it in relationship to the rest of your portfolio, and in addition to your roughly 25% in EM it makes for a lot of volatility and big stakes in some areas of the global growth story that have burned blue flame hot in recent years and could very well take a turn for the worse in tandem.

I saw in another post that you were thinking of maybe upping your 5% position in PRWCX. I think that would be a good move at this point. I see a fund like PRWCX as a hard core holding. I'm not sure if only 5% will have much impact on your overall portfolio. I like to build a base with the likes of PRWCX, FAIRX and OAKBX paired with global funds, further diversify with bonds, TRREX, and maybe look to add some extra EM and maybe NR/PM/commodities so as to have as many non correlated assets as possible. I guess that all sounds pretty text book like, but it makes sense for me. 

But then again, as Coy said, only you can determine your risk tolerance. So if you are willing to ride the ups and downs, and trust me there will be some major turbulence, you just very well may wind up with great returns in the long run.

migues

I'd like to think I'm fairly sturdy as it relates to risk. However, I didn't invest in tech stocks in the 90s and so didn't really feel worst of the pain after 2000.  Also, I haven't been investing long enough to have seen the 70s or 80s...so my actual experiences are quite limited (relatively speaking).  My portfolio as of right now (rounded):

DODGX - 14%

PRMSX - 14%

PRNEX - 11%

PIEQX - 10%

PRSVX - 8%

PRFDX - 8%

TRMCX - 6%

PRGFX - 6%

PRLAX - 6%

PRHSX - 5%

PRWCX - 5%

RGAEX - 4% 

TRAMX - 2%

I'm currently adding to RGAEX regularly and will eventually replace PRGFX with it (waiting for it to come back a bit).  Historically, I have probably about 15% in PRWCX on average.  Perhaps along with the 5% I'm planning in the next month or so, I would also target to move the funds currently in PRGFX into there as well.  This would put me back around 15-17% in PRWCX and provide some counterweight to the spicier stuff?  I really appreciate the feedback (and sharing of prior experiences).  Additional thoughts are welcome / appreciated.

 

invest4,

I think switching out of PRGFX for PRWCX is an excellent idea. I don't see much in the way of bonds in your mix so adding more PRWCX would give your portfolio some ballast. One of the main goals of PRWCX is preservation of capital. Preservation of capital is important for any investor, but I think it's even more important as one's portfolio matures. The larger the portfolio the more vulnerable it is. Something like PRWCX allows your rambunctious funds in EM and NR to go out and raise hell on the weekends with the knowledge that someone's home holding down the fort.

Something else to consider is that we tend to build our portfolios gradually over time via disciplined, regular dca contributions to 401k, IRA, taxable acct, etc. It sounds as if you are off to an excellent start for someone still in his 30's. Before you know it you may find yourself with a huge sum of money to not only grow, but preserve. Volatile funds tend to make their gains in bunches so we better be in them at the right time or be willing to hold them for the long haul. What's that old adage? Something like "It takes the stairs up and the elevator down."

Don't get me wrong, I hold some pretty racy funds myself, but I use them in moderation. Volatile funds are like streak shooters in basketball; they're great when they're hot, but when they cool off it's nice to have a PRWCX and or OAKBX in the trenches, always ready and willing to play defense and rebound, two things that if you don't do enough of in the long run you will probably lose more than you win.

migues

Thanks Migues.  I think I will do just that.  I also like utilizing PRWCX as somewhat like a holding tank to be allocated elsewhere when the opportunity arises (ex: like the recent downturn).  In regard to bonds, I've tried some things of its ilk (ex: PRHYX and the Intl Bond fund), but decided that at my stage in life, to forego them (but am very open to opposing views on this topic).   I appreciate the sentiment about being off to a good start. However, when you consider that 50% of workers have saved less than $25,000 for retirement and most of the country seems to be up to their eyeballs in debt, the bar doesn't seem to be a high one. My investing story is pretty boring:

Boy gets job

Boy meets 401(k)

Boy eventually maxes out 401(k) contributions

Roth IRA catches eye of Boy

Boy engages in lifelong dream of threesome with 401(k) and Roth IRA

Boy maxes out both

I don't really have any taxable accounts other than cash.  I have struggled with the whole question of when I would feel a more urgent need to preserve.  Given that it seems like it will take $4M in inflated dollars (ex: 2030s) to live a comfortable retirement, creating a substantial portfolio seems oh so far away.  However, I absolutely agree that you need an anchor like PRWCX to keep things even.  As you suggested, the swings get a little bit nastier as it grows.  Although I don't really consider a house an investment as such, I also have a decent amount of home equity and consider that also in my total allocation of investable assets (basically look at it as cash).  Do you look at your "portfolio" in a similar fashion?

invest4,

You are wise beyond your years.

 However, when you consider that 50% of workers have saved less than $25,000 for retirement and most of the country seems to be up to their eyeballs in debt, the bar doesn't seem to be a high one. My investing story is pretty boring:"

The lack of saving and the amount of debt out there is sad isn't it? It's as if everyone is following the government's lead when it comes to managing money. My investing story is pretty boring as well. In fact, the longer I'm in this game the more I like boring investments.

"In regard to bonds, I've tried some things of its ilk (ex: PRHYX and the Intl Bond fund), but decided that at my stage in life, to forego them (but am very open to opposing views on this topic).   I appreciate the sentiment about being off to a good start. However, when you."

I have been investing since 1983 and I have never been less than 70/30 stocks to bonds. At this point, at 49 years of age, I am 60/40.  I am sure you have seen the research that concludes that 80/20 is just about a free lunch. Some of the reasons why I will always have some bonds in my portfolio:

1. There have been long periods where bonds have outperformed stocks. Just look at the last ten years for example. Let's use Vanguard's Total Stock Market Index and its Total Bond Index as benchmarks. VTSMX 3.89% and VBMFX 5.78%.

2. I have a bunch of CDS that pay between 5.25%-6%. I consider them as part of my 40% in fixed income. Have had them for years. I smile every time I receive an interest payment.

3. Just looking at this year alone and the bond funds I hold. PRCIX up 2.14%, ACITX up 3.74% with PRIPX not far behind, RPIBX up 7.52%, MERKX up 7.98% and LSBRX up .04%. All up better than the average equity fund. They have done what I have asked of them, protection in a down market and a lack of correlation with stocks.

4. My wife is ultraconservative and I firmly believe that we should honor our partner's wishes in all aspects of life, and especially when it comes to something as important as investing.

Although I don't really consider a house an investment as such, I also have a decent amount of home equity and consider that also in my total allocation of investable assets (basically look at it as cash).  Do you look at your "portfolio" in a similar fashion?

I don't look at my house as an investment; it's where I live, and if I didn't live in my house I would have to live somewhere else, no? Anyway, what's the historical return on residential real estate, something like 4-5%? It's another asset you better time right or be willing to hold for a long time, and even then . . . I don't have the patience for rental properties either. My wife and I help her parents manage their rental properties and it's more trouble than it's worth.

Thanks for asking such great questions. I don't know if I've helped you even a little bit, but I do appreciate the opportunity to think out loud; it's one of the many ways that this forum can make you a better investor.

migues

IMO? You gots too many cards on the table , my friend..

Total them all up and do the math and your not doing much better to even less than owing 50% of those..

As for > " I didn't invest in tech stocks in the 90s and so didn't really feel worst of the pain after 2000. " ?

You missed out on one of the Greatest Rallies in History.. One does not Invest in Small Sectors like Techs,Health, Oil/energy,  Gold for Long Term, Int'l, EM's  and thus they are short term investments and having a Target price to reduce/sell is mandatory requirement..  I an many others Made a Bundle on Techs, but we knew it wasn't a LT Investment.. never has , nor never will be..

A College Buddy of mine , bet baby's shoes on tech's, but he alreaady had over 10 yrs experience playing that game... He Made so much $? He ened up Quiting his Job, Sold the House and moved and bought a Franchise business> Starbucks in Cal. and now owns 5 of them and he has more than enough invested in a Retirement Port he doesn't need any $ from his Businesses to worry about Retirement...Although He never plans to retire...

Just remember> "He who takes no Chance, HAS Not Chance..."

Just like now, Fortunes have and are still being made in Energy.. Eg: POT/XTO stocks

You'd probably been far better off just going 80% in PRWCX and use the other 20% in those sectors, such as PRLAX and some Stocks( Like from the Top 5 list of stocks in some of the best M.Funds ) .. and broaden your Experience in owing some Stocks and Short term Sector Funds..

And unless you can end up with extra $ when you retire? You only get 1 shot at doing this stuff while your still working ...

It worked for me

Ha! Don't get me started on the whole debt thing (we've got to get our act together). 

1) Bonds - Food for thought.

2) CDs - Interestingly, I actually have some CDs for the first time that I can remember.  I opened them up right before and the morning of the 3/4 rate cut (I RAN to the bank).  They are at 5.5%...and yes, it's nice.  Although not typical, it just so happens that the amount is a fairly significant chunk of my investable funds (25% or so). It's earmarked for an eventual home purchase.  This is why I mentioned the home equity bit.  In my view, the amount of equity you have in your home is essentially "cash" with a very modest return (the effective interest you don't pay).  Granted, it's not entirely liquid and has proven risky for some (overheated markets)...but you get the idea.  Do you have an opposing view?

3)  I hear ya.  Heh, I have historically considered PRWCX my proxy bond fund.  I've seen various articles on 80/20 and volatility, etc.  Although my initial impulse is to say "bah", I'm sticking with 100%...I will sincerely give this some more thought.

4) My wife helps me to remember to live a little now instead of always focusing on the future.   As far as investing is concerned, I think her primary risk criteria is that I don't screw it up too badly.

I agree with you that I do not consider the home an investment as such.  However, I do think the manner in which you make the purchase has a financial impact and risks to your overall "portfolio" and should be considered as I indicated in point # 2 above.  For example, the decision to make a significant down payment on your home is quite different than if you choose to invest it in equities.  Generally, I consider the first option to be low risk with a relatively certain minimum return.  The latter likely entails more risk with the potential for a higher return.  Essentially, it's another option / vehicle for the investable dollars I have available.  Make sense or is my age showing?

I very much appreciate the responses. As you suggested, the idea is to become a better investor (or at least perhaps a bit better informed).
 

Replies to invest4, 

"This is why I mentioned the home equity bit.  In my view, the amount of equity you have in your home is essentially "cash" with a very modest return (the effective interest you don't pay).  Granted, it's not entirely liquid and has proven risky for some (overheated markets)...but you get the idea.  Do you have an opposing view?"

I am so conservative by nature that I have always had 100% equity in my home. Something about holding the deed myself has always made sleeping at night a breeze. My wife and I have only had one home, and we saved for years so we could buy it outright. Bought the land first and then three years later had the house built. That was about twenty years ago. I don't even count the equity in my home as part of my portfolio. I love my house and I hope to be in it long enough so they have to take me out feet first. We have done a number of things over the years to make it a legacy home, ( I could go on forever about that) and my ultimate goal is to keep it in the family so that my kids can continue to have ties to the house they grew up in. Hard to put a price tag or portfolio percentage on something like that. 

"I agree with you that I do not consider the home an investment as such.  However, I do think the manner in which you make the purchase has a financial impact and risks to your overall "portfolio" and should be considered as I indicated in point # 2 above.  For example, the decision to make a significant down payment on your home is quite different than if you choose to invest it in equities.  Generally, I consider the first option to be low risk with a relatively certain minimum return.  The latter likely entails more risk with the potential for a higher return.  Essentially, it's another option / vehicle for the investable dollars I have available.  Make sense or is my age showing?"

I agree with you that the way you buy your house has major impact on the amount of risk you take elsewhere. Owning my house makes the ups and downs of the market less nerve-wracking, (OAKBX is good for that too) and makes me more likely to invest in stocks/funds and hold them for a long time. BTW, your age doesn't show even a little bit.

"I hear ya.  Heh, I have historically considered PRWCX my proxy bond fund.  I've seen various articles on 80/20 and volatility, etc.  Although my initial impulse is to say "bah", I'm sticking with 100%...I will sincerely give this some more thought."

Nothing wrong with 100% equities, especially if you are patient and brave. I'm patient and chicken, so I like bonds. It also comes down to need, as opposed to willingness to take risk. At this point of the game I don't need to take any more risk than 60% equities, so I don't.

Nice conversation. I hope some other people chime in as I would be very interested to hear their thoughts on these issues.

migues

Invest 4,

Very interesting thread you have started.  You have garnered some very good comments from some of the best posters on the Morningstar.

Although I do not own PRNEX, I would if I did not already hold VGENX.  Both are worthy of long term holds.

 
I agree with Pat Morgen in the fact it is time to take some money off the table.  Monday I exchanged enough out of VGENX to bring my allocation back down to 10%.  I believe one of the hardest things to do is to rebalance out of a winner into a under-performer. 

   
As to Coy's advice, I would have to agree with him on the prudence of an allocation of less than 11%.  Other than a small allocation in REITS, everything else I own is fairly tame.  I feel comfortable carrying around 10% in energy because living in Houston I grew up in the shadows of the likes of Exxon,  Baker Hughes, and yes even that evil Halliburton.  Over the years I've learned to live or die with the oil field economy, and for better or worse I have found myself emotionally attached to the oil & gas industry.  

I rationalize (probably a very irrational viewpoint) my allocation to VGENX as if were an investment in a business rather than a retirement investment in the stock market.  That is to say when I retire I plan to continue to take any increase over my target allocation and feed it back into my other retirement investments, and when my VGENX allocation is below its target I will leave it completely alone to recover.

Migues my friend...

I wholeheartedly agree with you concerning equity in a home.  I know there is a multitude of advice that would have you to use the equity in your home to invest in more real estate, the stock market, buy a vacation home, payoff credit cards or just blow it on anything that makes you feel good.  A home is an investment in your family and nothing will do more damaged to the emotional well being of a family as the pressure of living on the edge with a huge debt on your home.   I greatly admire your personal example of having a home that is paid for.  I have been living in the same house for 18 years with a mortgage payment that is less than most car payments.  Even if something happened to my income, we could easily manage the small mortgage payment, and we will have our home paid off before we retire.  

The only thing you have said in this thread  that I might take a slight issue with is your use of a market index to to make assumptions concerning ones stock/bond allocation.  Zig Ziggler once said, " If you have one foot in boiling water and the other foot in ice water, on average you still not going to be comfortable."  I feel the same way on using market indices in making assumptions concerning investment decisions.  

One of the worse periods in recent investment history for retirees was the thirty year period starting in 1965. Using a market index William Berntein's calculator from hell shows that anyone retiring in 1965 would have a fairly bleak retirement regardless of the stock/bond allocation.

On the other hand if you had invested a $100,000 in either AWSHX (no bonds or cash, & 100% invested in equities) or AIVSX and taken an initial withdrawal in 1965 of $5000 (5%) and increased that $5000 withdrawal by 5% each year to compensate for inflation, your final withdrawal in 1995 would have been $21,600.00.

Your investment in 1995 of AIVSX would have a ending value of $1,046,236.00, and the ending value of AWSHX in 1995 would have been $778,860.00.

According to Bernstein, no combination of a market portfolio of stocks and bonds could have managed such an outcome.

Another example of what I am talking about can be found in an article by American Funds entitled, "Total return isn't always the total story."

 David Dreman, once asked in his book concerning risk as interpreted by the EMH and MPT, "but the critical question is still there, why this is measure of risk rather than the analysis of a company's financial strength, earnings power, outstanding debt, or dozens of other measures that Graham and Dodd or corporate management use?"

I'm not completely anti-index, and I most certainly agree with the merit of your stock/bond allocation advice, I just don't like to use market indices to make sweeping assumptions.
I'm probably not making any sense, so I guess this is enough rambling for tonight.

helmut
 


 

[quote user="maruyamakiyoshi"]It may not be a right idea to gauge to S&P500, but according to X-ray, S&P500 has about 12.4% in energy and 13.10% in industrial materials. FWIW. KM[/quote]

The percentage of the S&P 500 in different sectors varies over time.  Using the market capitalizations in the S&P 500 Data web page for then end of 2000, at that time energy was 6.6% of the index.

Pat,

Thanks for the link. However, I couldn't figure out from the table your mentioned 6.6% at 2000 end. X-ray on FSTMX (Total) even gave similar %s as FSMKX did. Are you implying that the data shown by X-ray is way off?  Certainly 7% and 12% are quite different and I admit. Thanks for your clarification in advance. KM

Pat,

I figured out! From the table for 2008, energy is 14.04% of the S&P 500 marketcap. So, I could check if one's portfolio is either overweight or underweight wrt that of S&P500. Today, I believe many people are underweight in financial except those who really believe that the financial's bottom has reached or past. FWIW. KM

Hi Gang,

I just read an article in Money Mag.  I understand that much in the investment mags is just porn and garbage and read it anyway to see whats being said.  I try to discern between the porn and sound info in these mags as a learning experience and to test my knowledge.  I usually find "some" good info each time I read them.

The following struck a chord with me and, IMO, is sound advice on PRNEX.

excerpt from "The best ways to protect your Money Today" by George Mannes

 "......The fund has risks, of course.  It has gained nearly 30% a year for five years; if oil prices fall and inflation subsides, you could lose money buying in at this level.  So understand what you're getting with New Era: not a chance to win big but insurance against the risk that inflation will get worse.  If peace of mind is worth it to you, shift about 5% of your stock portfolio from other large-caps to the fund.  That's enough for insurance but not so much that your're betting your future on commodity stocks."

So before buying this fund one might ask themselves......

Why am I buying this fund?

- Am I performance chasing or market timing?

- Am I seeking an inflation hedge?

- Am I thinking long term or short term?

- Am I filling out my suitable well thought out allocation with a market that many feel should play an important role in ones portfolio?

For whatever reason, and anyones personal choice is fine by me, just know what you own and why you own it! 

I hope this helps others and welcome any comments.

Good Luck

Brian

One difference between NR and tech: With tech products it's relatively easy for competitors to make the same widgets, and drive prices down (e.g. all things computer-related). With NR, there's only so much of it, and it gets increasingly expensive to find/extract as it gets used up (and the global middle class increases).

Also, in the pre-2000 bubble tech companies without earnings were trading at huge prices. There may be a bubble now in oil for example, but I think most NR companies would have decent earnings even if commodity prices were lower.

At least this is what I tell myself to keep holding PRNEX.