time, lower costs are likely to produce higher returns.”
Such a mix of index funds and actively managed funds may be especially appropriate if you’re an employer responsible for crafting a company savings plan. “We sponsor a 401(k) plan for our employees,” says Joseph A. Williams, 60, president of Target Group, a human resources consulting firm in Chicago. “When we selected funds for employees to choose from, we emphasized conservative funds likely to produce long-term growth.” Selections here include Vanguard 500 Index Fund, which tracks the S&P 500, and T. Rowe Price International Stock Fund, which has performed very well over the past 15 years.
DIVERSIFY, PART ONE: GROWTH VS. VALUE
After investors have bought shares in domestic and large core international funds, they can add actively managed funds to their portfolios, according to Parr. “I prefer funds that have had the same manager or managers for a lengthy time period,” he says. “I also like to see funds that have performed well within their category. It’s not fair to compare a small-cap value fund to a large-cap growth fund, but some small-cap value funds have done better than others.”
As your portfolio grows, Parr says, more funds can be added, keeping the emphasis on stock funds for long-term growth. “You don’t need many funds, no more than six to eight altogether. Try for a mix of growth and value funds because you don’t know which style will be in favor in any given year.” Case in point: while growth funds clobbered value funds in 1998 and 1999, in 1997, large value funds outperformed large growth funds 26.8% to 25.6%, according to Morningstar.
For the growth side of an investor’s portfolio, among the funds Parr recommends to clients is Vanguard U.S. Growth Fund, which specializes in large U.S. companies. “It’s not flashy but it has been consistent.” Indeed, the fund had only one down year in the 1990s (it lost 1.45% in 1993) and returned more than 22% in seven out of the last 11 years. On the value side, Parr says that Weitz Partners Value Fund “has consistently topped its peers.” According to Morningstar, it ranks among the top 6% of all funds for three-, five-, 10-, and 15-year returns. (Although this fund has an official minimum investment of $100,000, it is available through several mutual fund “supermarkets”-including Fidelity, Schwab, and Waterhouse-for as little as $2,000.)
Brian Korb, a financial planner with LifePlan Financial Group in Dayton, Ohio, is such a believer in a balance between growth and value funds that he has been advising clients to move from leading market sectors to laggards, a strategy he’ll continue in 2000. “We’re cutting back on large growth funds, which have gained,” he says, “and putting some of that money into small value funds, which have struggled. Although rebalancing into small value stocks didn’t help in 1999, we did benefit by increasing our commitment to small growth stocks, international stocks and natural resources, all of which did very well in 1999.”
Why is Korb so willing to