To follow our Best of Fidelity Selects (FidSel) Program recommendations you will need to open a standard stock (fund) brokerage account (if you don't already have one). We would suggest using either Fidelity Investments directly or a discount broker such as T. D. Waterhouse, Scottrade, or eTrade. All offer very low trading commissions and good service. However, most of the discount brokers, other than Fidelity, will charge their own early redemption fees (ERF's) on top of Fidelity's .75% fee making Fidelity the best bet for running this Program--at least from a cost standpoint. TSP Pilot has no financial interest in, or relationship with, any brokerage company.
It would also be wise to set up a web enabled, online access to your account with your broker to facilitate making the portfolio changes we recommend in a timely manner. We would also suggest setting up an attached banking feature to facilitate your moving funds in and out of your brokerage money market account.
While the very broad Fidelity Select portfolio covers most equity sectors, there are at least two sectors that will need to be supplemented. For that reason we will add the following two additional Fidelity funds to the FidSel Program (1) a realty fund, Fidelity Real Estate Investment (FRESX), and (2) an international fund, Fidelity Europe Capital Appreciation (FECAX). The realty fund, FRESX, has a higher 90 day holding period before the early redemption fee is charged. Our historical performance figures take this into consideration. These additional two funds will round out the sectors covered by the Program.
Since there will be no email alert notifications provided for this program (as they are currently provided for all Thrift Savings Plan fund allocation changes), subscribers will need to visit the regular TSP Pilot Current Advisory Page daily to determine any new recommendations for portfolio changes in the TSP Pilot FidSel Program. The FidSel portfolio recommendations will be provided at the bottom of that page.
For diversification we would suggest splitting your non-TSP funds equally between our FidSel Program and or new ETFs Program.
Our FidSel portfolio recommendations will always be expressed in percentages to facilitate differently sized accounts. For example we might suggest at some point investing 50% in Fidelity Select Health Care Portfolio (FSPHX) and 50% in Fidelity Select Utilities Growth Portfolio (FSUTX). You would then invest 50% of your funds available for this program into each selection. A simple Excel spreadsheet may assist in tracking your FidSel program funds.
The FidSel Program will take positions in the top two Fidelity Select funds based on TSP Pilot's proprietary fund selection criteria. Therefore, each position will require a 50% funding commitment.
An important leverage feature of the FidSel Program is its partial use of the ProFund's Short Small Cap Inverse (SHPIX) fund when sell signals remove accounts from the Fidelity Selects stock funds.
ProFund's Short Small Cap Inverse (SHPIX) fund is the inverse (or short) of the daily Russell 2000 small cap index. Committing a portion of funds to an inverse Russell 2000 small cap index (SHPIX) on sell signals leverages ammounts to taking a partial "short" Russell 2000 index position on sell signlas. Thus on FidSel Program sell signals accounts are 50% net short the market. To reduce transation costs you may want to open a small account just to trade SHPIX directly at ProFunds, the family that sponsors that fund. More experience traders may want to simply short an equivalent amount of the Russell 2000 Exchange Traded Fund, IWM rather than purchase SHPIX.
For those unwilling to take a partial short position on sell signals subscribers can simply sideline all funds into the Fidelity Select money market fund (FSLXX) during the same sell signals. However, keep in mind that the best returns have historically come from including the short index fund on sell signals since the past has included several protracted bear market cycles. FidSel performance included in these links assume a 50% commitment to the Fidelity Select money market fund (FSLXX) and 50% to the Profunds Short Small Cap Inverse (SHPIX) fund.
Since your "other" investment funds may not be in the same tax preferred setting as your TSP account, you will likely have short term capital gains to pay on most of your FidSel/ETFs account profits. You should therefore adjust your net return expectations accordingly.
Don't test the retirement waters alone. Put your TSP ship a league ahead by requesting your FREE BACK ISSUE or by SUBSCRIBING at our special reduced rates today!