Model Investment Portfolio Instructions.

You switch between the sheets by either clicking on the sheet tab names at the bottom left of the Excel window, or by pressing *Page Up or Down (pressing the control key and either the Page Up or Page Down key at the same time).

If you have Excel 2007, then first save the workbook as an xlsx workbook.

Before getting started, save an unused copy of all of the files in a separate folder, so you'll always have the original unaltered files. Then if you do something like delete a formula, you can easily fix it by copying it from these original files.

If you're seeing this: ####, then either increase your Zoom magnification number (View, Zoom), or make the column width wider. If you see this: #REF! or #DIV/0! after completing your input, please respond to get a new program immediately. This means data was lost either via e-mail, unzipping, or while making a CD.

Read how to present sample reports to prospects and clients.

How to send financial plans to clients via e-mail, without sending the whole program is explained on the Excel help page, here.

Tips for saving financial planning client computer work are here. You should make CD backups of all of your work on a monthly basis, and store the CD in a safe location, but not where your computer is. It's critical to back up your data, but not programs. Don't forget to backup your MS Outlook Express e-mail folders too. Do a search for *.dbx files to find them.

Read about financial planning software support here.

It helps to download and read the detailed explanation text. Another document to help understand asset allocation is here.

These are the directions for the Asset Allocation Model. The directions for the Asset Allocation Software are here.

The three spreadsheets you have with the words "Linked" in the file names are just for calculating historical returns, and for seeing the past mutual fund switches. They don't do anything else, and are not used in these directions, so you can ignore all of them.

Once you're on a model sheet (e.g., Fee-Based Model) it's helpful to know that the only thing that's different between the five models (Conservative at the top through Aggressive at the bottom) are the Allocation Weights in Column O. Everything else is the same and is just referenced from the Conservative Model.

Directions for Investing Consumers (Non-professionals)

If you're using the asset allocation model for your own investing, you can ignore the directions in the section below for financial professionals.

You don't have to use the recommended mutual funds to fund these investment models. You can replace any of them in any asset class with mutual funds of your choice, ETFs, index funds, stocks, bonds, individual securities, life insurance company subaccounts, 401(k) options, or anything else you want to. The only catch is that you'll have to come up with the historical returns to make the return calculations work right.

Open the Excel spreadsheet named: Mutual Fund Picks.xls

Then open the spreadsheet named: Models for (last month).xls

Step 1) Determine your Investment Risk Tolerance Category (click to read what this means).

If you don't have a financial tool for doing that, and don't want to guess, then the Investment Fact Finder is the tool designed to do that job better than anything else. It's only $9 once you buy the models.

Directions on how to use the Investment Fact Finder to gauge your risk tolerance are on the bottom of this page.

For example purposes here, let's assume you did that, and scored "Moderate," which means, average or middle-of-the-road risk tolerance.

Step 2) Choose which overall investor model you're going to use. The four sheet tabs in the middle of the model program correspond to these four methods of investing. The six models for non-professional investors are:

º All No-Load Mutual Funds.

º All ETFs.

º All Index Funds.

º High-income no-load model.

º All No-Load Mutual Funds with less than $60,000.

º All No-Load Mutual Funds with less than $20,000.

Benchmark Index Models are for use as benchmark portfolios to compare passive-vs.-active investment management.

For the rest of the directions, we're assuming you chose the No-Load Mutual Fund Models.

Go to that sheet in the Models for (last month).xls spreadsheet by clicking on the sheet tab at the bottom left labeled, "No-Load Model." Now you can ignore the other sheets.

Step 3) If you want to keep track of the returns daily, then you can input each investment's return numbers (Columns H, J, and L) from a source of financial data, like the stock/mutual fund section of most newspapers.

Remember not to input cumulative three-year returns. Input the average annualized three-year returns (the average over the last three years).

Finding the Last 12 Months and Last Three Years Annualized Average returns are harder than finding the year to date numbers. You can get help by trying to find it online, calling the mutual fund, looking in the prospectus, contacting you custodian (e.g., Ameritrade), of if bought support, you can just send an e-mail and you'll get it sent to you.

Important: Remember to only edit the return numbers on the Conservative Model (rows 6 - 21), because the other four Risk Tolerance Categories below get their investment return numbers from there. You'll almost never need to tinker with anything below row 21.

If you input new return data, use the Save As... function to save the workbook using a different name to preserve the original workbook.

Step 4) Go to the Fee-Based Model sheet and ensure there are 0 (zero) in cells U1 and U3 to make the Before and After Fee return numbers the same.

Step 5) Assuming that you did Steps 1 - 4, you're now looking at the No-Load Moderate Model by being on the sheet tab titled, No-Load Model

Look over at rows 86 - 126. This is the Moderate Model. If you scored Moderate, like we're assuming you did, then you can ignore the two models above and the two below.

The only other thing of interest to you are the returns graphs staring in row 217, and where you input return data into the Conservative Model in rows 6 - 21. If you're sure you're not going to care about the other four models, then can hide all of those rows, and input the returns directly into the Moderate Model in rows 91 - 106.

Now take the amount of money you plan to invest, and just start multiplying that amount by the Allocation Weights listed in Column O (let's use $25,000 as an example).

And let's assume that you're using Charles Schwab as your custodian and you're going to use the Mutual Fund picks that come with the investment models.

About opening a discount brokerage account so you can manage your own money is discussed here

Don't do anything with the Cash allocation, because whatever is left over when you're done, will just remain in the Schwab Money Market account (a cash equivalent).

Now switch to the Mutual Fund Picks spreadsheet that came with the model portfolios, as you'll need this to get the mutual fund ticker symbols to make buy trades. Ensure you're using the latest month, as shown at the top.

First, look up the ticker symbol for the mutual fund used in the first asset class in the portfolio model (Short-Term Bond).

Take the corresponding ticker symbol, and then tell Schwab to buy that mutual fund, in the amount that you'll arrive at when you multiply the Asset Class Weight percentage in Column O by the amount of money you're working with.

Don't give your trading people any trades to make until you're all done, and have checked your work! One little trading mistake will cause lots of future repair work, and could cost money too.

Continuing with the example, and assuming the Short-Term Bond allocation is 5%, you'd buy $1,250 of that mutual fund ($25,000 X 5% = $1,250).

Repeat the process with the remaining 15 asset classes. When you're done, the remaining amount should be the cash allocation. And you won't need to buy anything with that money, because Schwab will just keep it in their cash equivalent money market mutual fund.

Don't worry if things are off by a percent or so, as asset allocation is not an exact science. If you're off, and thus have extra money to invest, buy more of the mutual fund in the asset class that's currently down the most (and vice-versa). If you don't know, don't want to guess, and you bought support, then just send e-mail to ask.

If you can't buy the recommended mutual fund via your custodian, and you bought support, then just send e-mail describing your situation, and you'll keep getting replacement suggestions until you can buy something in that asset class. If this can't be done, then you'll get advice on where to put the extra money.

What to do if you don't have enough money to make a minimum mutual fund purchase: Use either the $60,000 or $20,000 minimum no load models.

If you don't have support, then here is what to do: Start looking over the risky (sector) asset classes in rows 99 to 104. Find the one that has the largest year-to-date return number.

Don't put any money into that asset class/mutual fund. Since you're not going to use it, you now have extra money to work with. Use this to buy the asset/class/mutual fund that you had a hard time meeting the minimum initial purchase requirement.

If it's still not enough, then repeat until it is. Ensure that the return numbers for the asset classes you didn't use are all either deleted or you input zeros. Now you'll have to tinker with the asset allocation weights in Column O to make the grand total returns results be correct. Just tinker with the numbers in Column O based on how you shuffled money around until the number displayed in cell O107 is 100%.

If you still can't and you bought support, then just send e-mail to explain and you'll get an answer back with specific instructions.

That's about all there is to setting up your portfolio model. You now own a diversified array of mutual funds, and in approximate amounts, that match the most important investing life factor, called Investment Risk Tolerance.

Important! Please note that the mutual fund screening process does not look into when large capital gains distributions are about to occur. This usually happens in late fall.

So before buying a mutual fund in a non-tax-qualified account, you should call the fund family and ask when they expect this to happen.

The problem here is that if you buy a mutual fund in a non-tax-qualified account, and then there's a large capital gains distribution, you pay tax on that and get no benefit (other than the increase in basis), because the value of the shares will fall by around the same amount.

One should wait until after this distribution occurs before buying the mutual fund.

Step 6) As time goes on, the mutual funds used in the investing model will change.

If you aren't subscribing to get these updates, then you'll either continue to hold mutual funds that may not be good anymore, or you can guess and switch them out yourself ad hoc.

The problem with that is you won't know when a mutual fund stopped performing, because you don't have the mutual fund screening software. Most of the time, mutual funds go down because that asset class went down. So swapping a mutual fund because it went down because of that may do more harm than good, for many reasons. So if you do this, you'll just be guessing all the way.

If you are a subscriber, then look at the Mutual Fund Picks spreadsheet that you'll get in your e-mail monthly. Look for yellow-shaded rows. Those are the mutual funds that changed from the previous month.

Just sell ALL of the old mutual funds and buy the new mutual fund recommendations with the sale proceeds.

If you bought support, then you can question the mutual fund switch, and if you don't like the answer you get, just don't swap it out, it's totally up to you. Also, if you bought support, and if you come across a mutual fund can't be bought via your custodian, then we'll find you another. Basically if you bought a supported version of the asset allocation model, then we'll help you maintain it in the Real World.

Step 7) The main advantages of using asset allocation over market timing and/or stock picking, are the low risk and great returns. Asset allocation, done correctly, forces you to perform the first law of investing - buy low and sell high.

This forced trading ritual is called "rebalancing." For example, if there is a rally in Technology stocks the previous quarter, and the current month is a rebalancing month, then the percentage you're holding in the tech asset class will be way more than recommended in the portfolio model.

Let's say that it called for 2.5% in Technology, and now you own 5%. You need to sell 2.5% (sell high) and use that money to buy what is currently down (buy low).

At least one asset class will be below its Allocation Weight, so you'd just buy more of that.

We know there are trading charges associated with all of this. You can make any rules you want to not spend too much money on this, but in general, if you're spending more than 2% to make a trade, then you're probably better off not making the trade (so if it costs you $25 to make a trade, then you would only want to make a trade if the amount of money your working with is $2,500 or more (2% of $2,500 is $50, because you have to make two trades, one buy and one sell, each costing $25).

Over time, you'll more than likely make more money by keeping up with the mutual fund selections, and paying the trading costs, than ignoring it. The worst thing you can do is try to market time the mutual funds and/or asset classes. This is because the long-term performance of the mutual fund picks greatly outweighs the trading costs over time (as long as the trades don't cost you more than 2%).

The odds are less than 25% that you end up winning by picking your own mutual funds, or using any form of market timing. This is explained in detail here and here and here.

Every quarter (January, April, July, and October) the asset allocator models are automatically rebalanced, so in order to keep up and reap the benefits of asset allocation, you'll need to rebalance. Asset allocation mix rebalancing is explained in more detail below (the bottom part of the directions for pros).

That's about it. The point is to make investment trades in your Real World investment portfolio, to match the asset allocation model as closely as possible.

Again, we want you to be happy with this service for a long time, so please contact us if you bought support, and have questions. We've been through this in every way shape and form a thousand times, so you can get simple answers to even the most perplexing questions.

Directions for Investment Managers Using Portfolio Models for Clients

Important! If you're going to maintain all of the Asset Allocation Models as they are (meaning you didn't change anything anywhere), then only enter data (investment vehicles that fund the asset classes, and their return numbers) into the Conservative Fee-Based Model (the first/top model of the far left sheet: Rows 6 - 21 of the Fee-Based Model sheet).

The other asset allocation models get their data from here. Some of the All Load, No-Load models get their market return numbers, and some investment vehicles, from there too. The ones that don't require that you input them directly into those sheets.

To see which ones do; look at the formulas in the cells. If it's just a number, then the fund is not the same as what's used in the Fee-Based Model, so you'll have to input it directly. If it is, then you'll see a formula referencing the Fee-Based Model sheet. Don't overwrite this unless you know what you're doing!

You don't need to use the recommended mutual funds, or mutual funds at all, to fund the asset classes.

Step 1) If you're going to use the model portfolios as is, then please read the directions above for investors now. They are pretty much the same for pros.

Not using it as it is, means you're going to change something (names of asset classes used, mutual funds used, allocation weights, the number of asset classes, etc.). If so, then reading the section above for investors will still help you understand what's going on.

If you're not going to use the asset allocation model as it is, you'll be overwriting the formulas in the models as you input your return numbers, and investment choices that fund the asset classes. To be more specific, the formulas in columns O, and Q - T (which are hidden), and probably the return formulas in cells O30/31/33/34/36/37. To do that, please follow along using the Fee-Based Model sheet:

Enter the asset classes, and/or mutual funds, you want to use in the appropriate sections in columns B & E. Be sure to enter only bond funds, or individual bonds/fixed income subaccounts, in the bond section (Rows 7-10), only true cash equivalents in the cash section (Row 6), etc.

If you don't keep all of this straight (as delineated by the top and bottom border lines) then the numbers in the asset class breakdown sections will be off (e.g., rows 24 & 25).

Step 2) Although we think you're going to get the best investment returns with the Asset Allocation Weights that came with the allocation models, you can easily modify them.

Just enter the Conservative Asset Allocation Weights you want to use in Column O (cells O6 - O21). Make sure the total sums to 100% in cell O22. Do the same for the other four Risk Categories below (this is the only time you'd enter data in the other four Risk Categories, because the other four get their data from the Conservative Model). The other four modes get their allocation weights from a hidden table in cells R6 - T22. There is no protection, so you can unhide these columns are make you changes directly there.

Step 3) Enter the year-to-date rates of returns in column I to the right of that mutual fund (or whatever investment you choose to fund the asset classes). Remember to only input return data into rows 6 - 21 on the Conservative Model because the other four models just get their data from there.

Step 4) Enter the annualized one- and three-year return numbers in columns K and M. Remember not to input cumulative three-year returns. Input the average annualized three-year returns (the average over the last three years).

Step 5) If you are charging fees in a managed account, edit the numbers in cells AA1 and AA3 to account for them. Input the amount of total annual fees, including trading charges, into cell AA3.

Then input how many weeks have passed already in the year into cell AA1. You do this because fees accrue weekly just like the cash returns. This way they will automatically be pro-rated throughout the year, instead of having them all deducted every month.

If you're not charging fees, then you can also go to the Fee-Based Model sheet and input 0 (zero) in cells AA1 and AA3 to make the Before and After Fee return numbers the same. Then you can hide those rows to minimize clutter.

For example, in the Conservative Model - rows 31, 34, & 37. Don't delete them, because then you'll have to edit formulas to make everything add up right in other places.

Step 6) Change the year-to-date returns for the six market indices in rows 27 and 28, making sure to use the same trading day that you got the other returns from. You only input these numbers in rows 27 & 28 of the Conservative Model on the Fee-Based Model sheet, and they automatically flow through to all of the other models.

Step 7) One of the first things to do is determine which kind of account the client will have - Fee-based, all no-load mutual funds, all load mutual funds, all Index/ETF, stocks/bonds/individual securities, whatever.

Step 8) After you've input all of the data into the models you'll be using, the only input left to do is the index returns for the graphs. Go to the sheet: Return Graphs. Go to cell AR71, and input the DJIA returns for the past year. Complete the remaining four index returns to the right. Repeat the process for the three-year average annualized returns starting in cell AR125. This will populate the chart data correctly.

Step 9) Compute the client's Investment Risk Tolerance Category using the Investment Fact Finder (or use what you're used to). This selects one of the five Risk Category Models.

Directions on how to use the Investment Fact Finder to gauge risk tolerance are on the bottom of this page. Assume for the rest of the directions that you scored Moderate.

Step 10) Print out and give them only that one asset allocation model out of the 56 available (13 Investing Models times 5 Risk Tolerance Categories).

Just giving this one page will avoid all of the questions and confusion about why they're in that model portfolio and not the others. If you're still in show-and-tell mode, and you don't know their investment risk tolerance category, then it's okay to show them all five risk tolerance categories, but still, it's best to limit them to the five that belong to one of the four investment models you'll know you'll be using (overall ways of investing - Fee-Based, all Load Mutual Funds, all No-Load Mutual Funds, and Index/ETF).

Step 11) Then use the directions for investing consumers above (or continue reading below), to buy and sell in the clients' account to match the Asset Allocation Model as closely as possible.

Don't forget to rebalance quarterly by reading the section below!

Important! Please note that the mutual fund screening process does not look into when large capital gains distributions are about to occur. This usually happens in late fall. So before buying a mutual fund in a non-tax-qualified account, you should call the fund family and ask when they expect this to happen. The problem here is that if you buy a mutual fund in a non-tax-qualified account, and then there's a large capital gains distribution, you pay tax on that and get no benefit (other than the increase in basis), because the value of the shares will fall by around the same amount. One should wait until after this distribution occurs before buying the mutual fund.

How to Use the Rebalancing Sheet

How to Rebalance at the Beginning of Every Quarter

The rebalancing sheet is second from the left, titled, Comparison Models.

First delete all of the sample data in the green-shaded areas: Range C7 - G22 and B3 & B4.

This comparison portfolio is just a name for your actual current portfolio, or the clients' actual current portfolio. You're comparing what is not in the model (the actual portfolio) to one of the model portfolios.

This sheet is used to input an investment portfolio to compare with the 20 models. Once you input the current portfolio (into range C7 - G22), it compares the asset allocation mix to any of the 20 models you choose (via drop-down menus in cells B3 & B4). This can only be done for the Fee-based, No-load, Load, and Index models.

It then tells you how much, in both percentages and dollar amounts, to buy and sell in the actual portfolio to reach the target asset allocation mixes. This is called rebalancing, and you're free to do it as often as you wish, as a lot of the great returns and low risk due to using asset allocation comes from this forced "selling high" and "buying low" process. At some point you're not going to want to pay all of the trading costs, so the industry standard is to rebalance the first day of every quarter. The returns posted on the site use quarterly rebalancing.

You can only input data into the green-shaded cells. First, input the names of the investments (mutual funds) that are currently held into column C, to the right of the appropriate asset classes in column B (the asset class names in column B are referenced from the Conservative Fee-Based Model, so you'll need to make your changes there).

You can lump things together, but keep in mind that the important thing is to keep assets segregated by their correct asset class.

Next, input the year-to-date (YTD), last 12 months, and last three years annual average returns into columns D - G. The returns on the whole weighted portfolio will be automatically generated and displayed in cells H28 - H35.

Management fees that investment managers' charge to clients are input into cell AA1 of the Fee-Based Model sheet. These are not mutual fund management, or any other internal investment vehicle fees. Those are already accounted for; because the returns you input are after all of those types of internal fees have been deducted. If you're using the portfolio models for your own investing, or you're a financial professional that doesn't charge direct investment management fees to clients, then input zero into this cell (and AA3 too).

Then choose which of the 20 model portfolios you want to compare to, by choosing one of the five investment risk-tolerance categories in cell B3 using the drop-down menu. Then choose which one of the four portfolio models to use into cell B4.

These asset allocation weights are then displayed in column I, and the difference between them and the actual current portfolio are displayed in columns J and K.

It's recommended to just buy and sell using these dollar amounts ASAP, regardless of how you "feel" about it. Using any gut feel, market condition, intuition, or market timing, or anything else in regards to whether or not to make the trades, will just end up eroding your returns. It's best to think of the asset allocation tools as an unemotional machine, and just do what it says to do. You may feel nervous about it in the short-term, but in a few weeks, you'll probably see that making the trades when you're were supposed to end up making more money than following any other methodology. About the only rational things to keep in mind when making the recommended trades, are the costs of the trades, and the tax implications. If you bought support, then you can get an opinion on what to do about these trading recommendations.

Then look at the difference in returns between the selected model portfolio and the actual current portfolio in range J28 - K34.

There is also a matrix that shows the return differences between the actual current portfolio, and all 20 investment models, starting in cell C40. All of the returns and differences are there, but it's a big table, which is why the feature of being able to manually select a benchmark portfolio, and easily see the results, is there too.

About Rebalancing at the Beginning of Every Quarter

Rebalancing is the technical asset allocation term that basically means this: At certain pre-defined intervals, you reshuffle asset class (mutual fund) amounts back to their original Asset Allocation Weights (Column O).

Research shows the most effective time frame is quarterly, and so that's what's used in the investment portfolio models. This must occur in order to get most of the benefits of asset allocation!

Explanation in English: Say you are brand new to the investment model and you're starting with $100,000, and you scored Moderate risk temperament (so you're working from the Moderate model).

The allocation for Large-Cap Growth is 15%. This does not change in response to market moves, so you're eliminating market timing (and emotions) by keeping the percentage of your total assets in the Large-Cap Growth asset class at 15%.

This would be impractical to do monthly, so it's only done at the beginning of every new quarter (or when the model's weighting for that asset class changes - which rarely happens anymore).

So in this example, you would initially buy $15,000 of the Large-Cap Growth mutual fund.

Say at the end of the current quarter, this Large-Cap Growth mutual fund has grown to $20,000, but due to the other asset classes losing money, your total portfolio is still $100,000.

You are now overweighted in the Large-Cap Growth.

Since the portfolio is still $100,000 you have to also be underweighted in other asset classes. So you need to sell $5,000 of this Large-Cap Growth mutual fund, and put (reallocate) these funds into the asset classes (mutual funds) that went down over the quarter.

Assume everything else is flat, but the Generic Bond and Small-Cap asset classes are both down 2.5% each. In order to bring your total allocation in these two asset classes back up to normal, you would take $2,500 and buy more of the Generic Bond's mutual fund, and also add $2,500 to the Small-Cap mutual fund.

You are now back to the original Asset Allocation Weights, and this is called rebalancing. One of the best advantages in the methodology is that it forces you to eliminate all of the emotion, market timing, gut feeling, intuition, tips, and all of the other things in the investment world that end up losing more money than it makes.

It forces you to sell some of the asset class that has went up recently, and at the same time, it forces you to buy more of the asset classes that have went down recently. The #1 saying in Wall Street is to "buy low and sell high" - and this is the best methodology ever invented to be sure you're always doing that, without having to fret over it. In other words, just do it, when you're supposed to, regardless of how you "feel" about it.

In reality, since the dollar amounts will be smaller for some people, it may be impractical to buy and sell mutual funds with these small amounts. But since models are never Real World, the software (the Linked Returns spreadsheets you get that calculate the actual returns) mechanically rebalances at the end of every quarter, even if only a few bucks moves around.

Again, models are rarely Real World, which is why they're called "Models." The point is that even though there are numerous practical limitations, it's still one of the best ways to manage money - if you're a consumer or a professional. The returns of all three models are shown on the main model pages, and sort of in the demo. You can see that they consistently outperform the market indices, which is the point.

Even though this may seem like a strange way to do things, it is very old-hat in the investment world, is taught in every real investment school, and is practiced by the majority of financial planners and professional investment managers (although not very well, and most financial consultant's asset allocator models are very mismanaged and therefore are very misleading, meaning you're not going to get the returns they showed you).

So if you're using the model allocations, you very much need to pay attention to rebalancing to get most of the benefits of asset allocation.

If you bought support, then you can ask questions at any time. The best questions are from people who ask if they should switch mutual funds and rebalance when they get their monthly mutual fund picks and investing model updates. You can send details of your situation and you'll get a Real World answer back.

Tip: Since thousands of investors are rebalancing at the same time, you may want to pick a different day to rebalance than the first day of the new quarter. You may make a few extra bucks by doing it a week before the new quarter. That way when people are selling things that went up, you'll be selling before everyone else, which means there will be less downward pressure on prices. And if you're buying asset classes that went down, doing it before everyone else will allow you to buy before everyone else, again beating the upward pressure. So the best time to do it is as soon as you get your updates in December, February, April, September.

About Switching Mutual Funds when They're Changed on the Mutual Fund Picks Spreadsheet

First of all, one of the screening criteria is to weed out mutual funds that have back-end redemption fees, (B shares), so there won't be any back-end loads or fees to worry about when you sell mutual funds. The only thing to be wary of is capital gains taxes.

It's impossible to give exact advice here about when to switch a mutual fund, because there are too many factors to consider. The purpose of switching funds is to use a fund that will behave most like the asset class going forward.

The new mutual fund is not intended to "go up" the most. The new mutual fund is intended to act like the asset class the most, and at the same time, go up more than that asset class when that asset class is going up, and go down less than the asset class when that asset class is going down - over the next year or so. This isn't a Morningstar-type firm, where they get paid-off to tout a mutual fund (or mutual fund family) as being "the hottest thing since the invention of the wheel."

In general, it's usually best to switch the mutual fund in the Real World when a switch is made. It's also always best to not put any new money into the old mutual fund after the switch. However, there are numerous Real World obstacles when it comes to switching mutual funds.

So the first thing to do when you look at the spreadsheet Mutual Fund Picks.xls, is to look at the reason for the fund change. They are given in the comment sections of the cell, and display when you hover your mouse cursor over them.

If a fund was sold because it closed, then it's best to keep it. The reasons for funds closing usually are not bad. You sometimes won't be able to add brand new money to a closed fund, but most of the time, you can add money to a fund if it's already held before it closed. This is fine. Just be aware that the fund will be off the screening radar, so if it goes bad in the future, you won't be notified.

If the fund was sold because its style or asset class drifted or changed, then it's best to change the mutual fund.

If the mutual fund changed because of "performance," then you'd most always want to make the switch, as something bad happened to the mutual fund over the last month or so, and experience has proved that it won't magically fix itself, so the new fund most always does better going forward. However, the difference in performance may be so small that keeping the old fund is the most practical thing to do. The problem there is that the old fund is not monitored anymore going forward.

Mutual fund families (the overall mutual fund family name, like Oppenheimer) will most always pull shenanigans with their mutual funds if they think they can make more money. So they let the mutual fund managers change the stated objective of the mutual fund without changing the mutual fund's investing strategy. Fortunately, Principia's screening filter will catch most of these shenanigans. Mutual funds that use deceptive marketing tricks are most always screened out of the results.

The best reason to make a switch is when the trigger is performance related. But more Real World factors to consider are:

· If the clients' holdings are small, then the ticket charges may be too big as a percentage to make it feasible to switch. For example, is the holding is $1,000 and it costs $20 to make a trade, then it's going to cost 4% to make the switch (2% for the sell and 2% for the new buy). This is too painful for most people, so you have to consider that.

· If the account has recently had a lot of trades, then the client could be annoyed with all of the trades.

· If the client is adverse to trades in general, then that needs to be considered.

· If your BD's compliance department is giving your grief about trading too much, then having to waste time explaining trades to them would be a factor too.

· If the client is happy with your services, then switching will go better than if the client is grumpy. Unless they're grumpy about performance... then you can say you're making the trades to get better performance (which is truly the whole point of switching anyway). Sometimes the client will be happy if you do anything but nothing, and making trades to get rid of bad performing investments, is doing something.

· If you have full discretion, then it's easier to make fund changes than if you don't. If you have to make a million phone calls, or send out letters/e-mails, to get permission to trade, then that's a huge factor. It's up to you whether to go through all of that to switch funds. Some Broker Dealer's are slowly getting with the program of asset allocation, and have come up the concept of "limited discretion."

This means that if you're practicing asset allocation, then they'll let you make switches without having to notify the client when you are rebalancing. The trick is to always use buzzwords that your compliance people will understand - and "asset allocation rebalancing" is one of them. That usually gets them out of your hair the quickest.

· If you like to track one of the portfolio models closely, then making the switch is more important. If you're doing the best you can to match the investment models so the posted returns will be as close to your Real World as possible, then you should make the trades as close to the beginning of the month as possible (about ten days after you get your updates). On the other hand, if the model is already contaminated by using other investments, then switching loses some its relevancy.

· Obviously making trades costs time, money, work, and has various risks involved (the risk of making a trading mistake, and then having to waste time fixing it, is always lurking about). So it's up to you whether it's worth it or not.

This is a complex issue, so if you purchased e-mail or phone support, feel free to tell your story and you'll get personalized advice. You are not bothering us, we want to hear from you and help you manage your models as well as possible.

How to Allocate Your 401(k) Plan Yourself Using the Model Portfolios

All you do is substitute a plan fund option in place of a mutual fund.

The tricks are to first pick one of the five investment models that match your investment risk tolerance (done via using the Investment Fact Finder), then sort your options by asset class, find the fund options that are not good, ignore them, pick only one good one per asset class, and then use that to fund the Investment Model's asset class.

It doesn't matter which model you choose to alter for your 401(k) (fee, load, no-load). Just remember that you only input returns and data into the Conservative Model (the other four models get the data from there).

· The first step in doing this is to determine which risk tolerance category you best fit into. If you don't already have a financial tool for doing that, and don't want to guess, then the Financial Planning Software Fact Finders are here (you want the Investment Fact Finder). Once you know which of the five risk tolerance categories you're in, you can start using the Portfolio Model's directions.

· Next, get a printed list of all of the investment fund/option/choices that are available to you. Print them, or do something, so you can sort them into piles by asset class.

We're used to using Morningstar Principia fund detail pages in the sorting process. For example, put everything that's essentially a bond fund into one pile. Do the same for every fund option.

Now you have a pile of asset classes with at least one funding option each.

Try to make a pile for every asset class used in the Asset Allocation Model. More than likely, you'll be lucky to be able to use half of the asset classes (there's 16 in the Investment Model, and you're lucky if you have access to eight asset classes in your 401(k) plan.). You'll get all the help you need with this if you buy support.

· Delete the mutual fund names that are now in the allocation model.

Now delete all of the asset class names that do not have funding options (no fund option is available to you in that asset class). Don't delete or just hide the rows, or the asset class names, just put your cursor on the cells and press the delete key.

You'll have to edit all of the formulas in the Portfolio Model to account for the missing asset classes. On all of the asset classes you've deleted, you'll have to adjust the allocation weights in Column O so that they all total to 100%.

For example, if you've deleted Biotech and Venture/Micro-cap, and these had a 10% allocation, then you'll have to decide where to add this 10% back to (Tech or Small-cap are the best choices). If you don't have good Excel skills, you may get stuck here, so we recommend getting support. If you have limited investment portfolio management expertise, you could get yourself into trouble!

· Next, you'll have to pick only one of the funding vehicles per asset class (the returns have most always been better like this). If you have a large 401(k), more than $1M, then it's okay to sometimes use more than one option per asset class.

To do this, you'll have to look at the returns and compare to the returns to the asset class, if you have that data. This is mostly up to you if you don't want to spend the $9 per investment research fee.

· When you've chosen all of the asset classes and funding vehicles you want to use, then input the names of the options you chose into the Portfolio Model, to the right of each asset class name.

· Input the returns in the columns to the right to keep track of their performance.

· Delete the contents of cell AA1 on the Conservative Fee-Based Model because you usually don't have management fees when you're doing it yourself.

· Input the returns for the market indices if you want to into the Index Model sheet.

· Use whatever you're used to using, and make all of the sells and buys to make your 401(k) match the portfolio model as closely as possible.

For example, if you have a $100,000 401(k), and you had $75,000 in Fidelity Aggressive Growth fund, and your portfolio model calls for $20% in Large-Cap Growth, then you'd need to reduce your $75,000 holdings of that fund to $20,000. The portfolio model will tell you what other asset classes/funding options to buy with the $55,000.

That's about it. The point is to choose investment vehicles that you can buy in your plan, and that match asset classes in the investment model. Then you input them into the investment portfolio model.

Then after you've determined your investment risk tolerance, which chooses one of the five portfolio models, you just keep that 401(k) model "balanced" over time (quarterly) by comparing the percentage of each asset held (in your statements) to the portfolio model.

That's the best way to get the most out of your 401(k) long-term. When it comes to getting money out of your retirement plan, so you can have a paycheck to live on, this all changes, and you'd be best served by using the more detailed asset allocation software (not the portfolio models) to make an asset allocation report that considers all of your holdings at once (not just your 401(k)).

· Read about professional investment management consulting services.

· Read about the mutual fund recommendation, screening, and analysis service where you can get professional, unbiased, opinions on just about any open-end mutual fund, with no conflicts of interest. This works well with this investment software because you have the flexibility to use any investment vehicle you want to, not just the recommended mutual funds. So you can still get the great returns with low risk that asset allocation offers, while getting using the best performers out of your favorite group of mutual funds (or ones you're limited to in your 401(k)).

Some generic advice about the mechanics of money management and trading is here.

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