activities as day trading, which can result in staggering tax consequences.
THE ART OF PORTFOLIO BUILDING
Joseph Smith has been successful in building a diversified portfolio. He has eight different accounts-including one long-term portfolio for stocks, another one for mutual funds, and an IRA-at Charles Schwab for himself and his wife. Smith, who is investing for his retirement, owns 25 individual stocks. Qualcomm (Nasdaq: QCOM), Triquint Semiconductor Inc. (Nasdaq: TQNT), and JDS Uniphase Corp. (Nasdaq: JDSU) are among his largest holdings. He also invests in John Hancock Funds, including its small-cap and index funds.
Partial to individual stocks, he also buys mutual funds for practical reasons. He says mutual funds offer diversification and balance his stock portfolio, should one of his stock investments take a plunge. “Stocks are very volatile, and you can lose a lot fast, particularly in this environment,” he says.
In fact, he may have as much as $100,000 invested in mutual funds at a given time and only realize a $10,000 to $20,000 gain in a year’s time. But he is confident the fund will make money, particularly if it’s well managed and diversified. But stocks, he says, come with no assurances. He recalls buying $77,000 worth of Qualcomm stock 10 months ago and realizing an $110,000 profit two months later. But since then, Smith says, the stock has dropped, and is now worth about $79,000. He cautions stock investors to be patient. “I plan to hold it for the long term and see what the value does over the next 10 to 15
Smith admits that he has been able to take such large positions because of his high-earning, dual-income household. He says the market has been good, affording them the luxury to travel frequently to see their prize-winning Doberman compete at national dog shows.
FINDING DIVERSITY THROUGH FUNDS
LaTonya Boyd Edmond, a 33-year-old mother and software engineer at a small consulting firm in Maryland, on the other hand, prefers funds to individual stocks because of the diversity of their stock portfolios. She and her husband, Bobby, 35, have invested their money primarily in mutual funds for retirement as well as to pay for college expenses. The couple started investing in one of the Seligman Communications and Information funds in 1996 with $1,000 they transferred from savings. They have consistently invested $100 a month in the fund and their account is now worth just over $11,000.
The Edmonds also have established mutual funds for the college tuitions of their sons William, 8, Aaron, 5, and Kenan, 3. Those funds consist of the AIM Fund and the DEM Fund, which is managed by Baltimore-based Chapman Co., an African American-owned financial services firm (see “B.E. Black Fund Watch,” Moneywise, October 2000). They purchased shares in the individual funds in 1995, 1996, and 1998, investing $75 per month for each child, and plan to increase the sums in subsequent years. Together, the funds are worth $11,000 today.
For conservative investors preparing for retirement, greenjungle.com’s Johnson likes mutual funds. But, he says, “Each investor must decide for