Portfolio Design help needed - Multiple restrictions!!

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Portfolio Design help needed - Multiple restrictions!!

Post by samsway » Sun Feb 10, 2013 11:21 am

Hi all,

I've been reading a lot on this forum, and have successfully finished the two Bogleheads books as well. Its fascinating how much is involved in smart investing. I am a believer in Index Investing now. However, I am in a very difficult situation and I really need help with designing my portfolio for retirement.

Very briefly, I am a physician, very early in my career, with about $100,000 in various retirement accounts. Here is my dilemma. I cannot invest in companies involved in certain activities. These include the following: banks and financial institutions, gambling, alcohol, pornography, interest bearing loans. As you can see, that limits me tremendously in terms of which Index funds or ETFs I can put my money in. As a matter of fact, it eliminates all of the major indices. Also, cannot invest in Bonds as they are interest bearing by the very nature of the investment.

A couple of funds that I am exploring very carefully are AMANX and AMAGX which follow these rules very closely. Another bond fund is WISEX (which is not available on Vanguard for some reason), which would be acceptable based on their investment policies and methodology.

Here is what I had in mind. I could possibly invest in the sector specific ETFs or funds that are available on Vanguard. Is this something that is doable? Will this bring me close enough to the diversity that I could get with the more general index funds? What about international sector specific funds/ETFs? I did notice the International REIT funds/ETFs available... but that is it.

Any help would be greatly appreciated. Consider this is a 80/20 portfolio. Otherwise, I am completely open to asset classes. I also understand that my return will not be close to the S&P 500 or other indices. Thanks in advance for all your help!

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Re: Portfolio Design help needed - Multiple restrictions!!

Post by samsway » Mon Feb 11, 2013 3:22 pm

Looks like this topic has been discussed in the past, but no solutions were figured out. My thought is that if I were to invest in the sector ETFs and avoid the financials and consumer discretionary, I should be ok... I would still be investing in the same companies, possibly different ratios... which leads to my question again. What percent allocation would help me approach standard benchmarks?

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Re: Portfolio Design help needed - Multiple restrictions!!

Post by texasdiver » Mon Feb 11, 2013 4:35 pm

Are these restrictions due to a particular religious reason? If so, you may get better advice asking other professionals of your same faith. Perhaps there are already structured investment vehicles that meet all these restirctions.

In any event, this is probably not the right site for instructions on how to put together a portfolio without index funds or bonds as that is pretty much all most of us do. If those are your restrictions then you are probably going to need to explore mutual funds geared towards your faith.

If you are going for individual stocks you'll probably just have to start with a list of the S&P 500 and start crossing companies off your list that don't meet your requirements and then try to invest in a broad group of others.

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Re: Portfolio Design help needed - Multiple restrictions!!

Post by NYBoglehead » Mon Feb 11, 2013 5:13 pm

I'd look into sector ETFs that are not restricted by your faith. The mutual funds you listed have very high expense ratios (1.2% for AMANX). In your case I'd also look to aggressively pay down any debt, as your investment returns are likely to lag the market.

Calm Man
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Re: Portfolio Design help needed - Multiple restrictions!!

Post by Calm Man » Mon Feb 11, 2013 8:36 pm

OP, unless you close your eyes, I do not believe you can invest in any company or any index. Every company provides loans to customers in one way or another. Every company's pension fund has some exposure to the segments you wish to avoid. I am not even sure what is possible but would be interested in hearing about these and I too do not like a lot of the areas you are trying to avoid.

Here are the top 10 holdings from AMANX:
Eli Lilly and Company Common St LLY 2.72 0.39
Nike, Inc. Common Stock NKE 2.52 0.47
Canadian National Railway Co CNI.TO 2.51 1.38
Colgate-Palmolive Company Commo CL 2.47 1.69
Illinois Tool Works Inc. Common ITW 2.40 1.92
W.W. Grainger, Inc. Common Stoc GWW 2.40 2.65
Exxon Mobil Corporation Common XOM 2.39 2.50
Pfizer, Inc. Common Stock PFE 2.37 3.31
Carlisle Companies Incorporated CSL 2.27 2.93
Honeywell International Inc. Co HON 2.25

Believe me, all of these companies loan money to customers or people or entities. They buy commercial paper and bonds with excess cash.

Here is AMAGX:
Apple Inc. AAPL 4.09 -14.76
Google Inc. GOOG 2.88 9.64
Intuit Inc. INTU 2.52 6.04
Amgen Inc. AMGN 2.49 0.12
Oracle Corporation ORCL 2.39 8.66
Trimble Navigation Limited TRMB 2.38 4.47
QUALCOMM Incorporated QCOM 2.37 7.87
International Business Machines IBM 2.28 7.12
SAP SAP.DE 2.21 3.97
Adobe Systems Incorporated ADBE 2.21

These companies all lend money.
Also, go to google: search for pornography or anything even more disgusting. There will be a million hits.

You also indicate that you want an 80/20 portfolio. The 20 is bonds, no?

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Re: Portfolio Design help needed - Multiple restrictions!!

Post by retiredjg » Tue Feb 12, 2013 9:54 am

It sounds to me like you are looking for Shariah compliant investment products. Perhaps these links will help.



http://www.bloomberg.com/markets/funds/ ... y-islamic/

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Re: Portfolio Design help needed - Multiple restrictions!!

Post by JTravers » Mon Jul 01, 2013 2:03 am

I know this is quite a few months after the original post, but I hope the OP finds the following information useful.

The best way to invest in Shariah-compliant passive indexes is to open an account at a broker that offers trading on global exchanges at reasonable prices -- Interactive Brokers, Fidelity, Charles Schwab, etc. -- and buy the 3 iShares MSCI Islamic Index ETFs that trade on the London Stock Exchange (LSE).

They are:
1. iShares MSCI World Islamic ETF (ISWD)
2. iShares MSCI USA Islamic ETF (ISUS)
3. iShares MSCI Emerging Markets Islamic ETF (ISEM)

The World ETF contains US stocks, so you have to keep that in mind when setting up your portfolio.

Beyond that, you're stuck with mutual funds with high fees or trying to create portfolios of compliant stocks yourself. For bond-equivalents, the Wise Capital Fund (WISEX) looks interesting, but -- again -- the high fees will make things difficult. Also, only having one unproven fund with your entire fixed income allocation could be asking for trouble.

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Re: Portfolio Design help needed - Multiple restrictions!!

Post by retirementandpf » Mon Jul 01, 2013 5:03 am

This topic is closed.

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