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Author: Taxedout Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75340  
Subject: F/U ? to Message 445 Date: 10/4/1997 5:32 PM
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These are two follow-up questions to my immediately preceding question concerning "UV2 Revisited."

I just read the description of UV2.

The first question is, "Would this strategy still be appropriate if the inherited IRA represents about 17% of the beneficiary's net worth (after inheritance) and a sizeable sum in absolute terms as well?"

(The only reason I ask this is it seems like alot to invest in just two stocks, but that is probably because the beneficiary is used to having too many different stocks of small amounts in the portfolio anyway.)

The second question is, "Since the IRA is tax-deferred, is there much of an advantage in trading the UV2 stocks (in deep discount brokerage account) more often than once per year (e.g., as soon as the stock no longer meets the criteria). My thinking why more frequent trading than 1 time per year might be advantageous is this might compound the return at a faster rate, and there is no tax reason to hold the stock a minimum period of time."

Thanks again!
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Author: JeanDavid Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 425 of 75340
Subject: Re: F/U ? to Message 445 Date: 10/4/1997 7:49 PM
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<'Since the IRA is tax-deferred, is there much of an advantage in trading the UV2 stocks (in deep discount brokerage account) more often than once per year (e.g., as soon as the stock no longer meets the criteria). My thinking why more frequent trading than 1 time per year might be advantageous is this might compound the return at a faster rate, and there is no tax reason to hold the stock a minimum period of time.' >

I doubt there is much advantage in trading more than once a year, even in a tax-deferred account. In fact, since the latest revision of the infernal revenue code, interest in studying longer periods (i.e., 18-months or so) has resulted in indications that a holding period of around 18 months may be ideal (even in tax-deferred accounts). More frequent trading will probably serve only to enrich your broker at your expense.

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Author: rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 427 of 75340
Subject: Re: F/U ? to Message 445 Date: 10/6/1997 2:26 PM
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<<(The only reason I ask this is it seems like alot to invest in just two stocks, but that is probably because the beneficiary is used to having too many different stocks of small amounts in the portfolio anyway.)>>

Yup. But think of the other saying "DO keep all your eggs in one basket. But keep a close watch on the basket." What's your alternative to UV2? UV4+? Foolish Four? If you think 2 stocks to under-diversified, how much better is 4 stocks? Take a good look at my postings on Drawdown (#292-295 in Retirement Investing). Any way I look at it (as longs as it's unemotional), UV2 is better overall than any of the other variation. But, emotionally, I get a bit nervous over owning only two stocks. You have to decide for yourself what your "sleeping point" is.

What I have done is to run several staggered mini-portfolios. By furious handwaving I can convince myself that this is "time-diversified". But, if the periods are staggered 4-6 months apart, it's likely that you'll own a total of more that 2 stocks. I currently stagger mine by two months, but that's probably too close together.

<<The second question is, 'Since the IRA is tax-deferred, is there much of an advantage in trading the UV2 stocks (in deep discount brokerage account) more often than once per year (e.g., as soon as the stock no longer meets the criteria). My thinking why more frequent trading than 1 time per year might be advantageous is this might compound the return at a faster rate, and there is no tax reason to hold the stock a minimum period of time.'>>
No. Go with the averages. It's appealing to think that you'll grab onto only the above-average times, and duck the below average ones. But it can't be done over the long run. There is NO way to arrange things so that all the returns are above average--not outside of Lake Woebegone.
If you want better returns inside an IRA, look at UG5.
Ray


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