him or herself what is most appropriate. There is no one right way to invest that fits everyone.”
Dr. Lawrence Wells, a 41-year-old orthopedic surgeon from Cleveland, aggressively invests in stocks and mutual funds but seeks balance and peace of mind through diversification to offset volatility. His fund holdings include the Janus and American Century mutual funds, while Cisco Systems Inc. (Nasdaq: CSCO), Intel Corp. (Nasdaq: INTC), and Microsoft are among his stock picks.
An investor for 10 years, Wells says his portfolio has yielded him annual returns of about 12% to 15%, in step with the performance of the S&P 500. He likes the expertise he gets from fund managers. At the same time, Wells pays for advice from a broker on his other investments. But he is also educating himself about equity performance trends so that he doesn’t have to rely on his broker’s advice alone. He also talks about investments with his wife, a voracious reader of financial publications.
In addition to developing a consistent savings plan to finance his retirement, Wells plans to use his investments to pay for college for his two children when they reach 18.
Whether investors buy stocks, mutual funds, or both, can be determined by their lifestyles and personalities. Prudential’s Echols says knowledgeable investors have enough money to research and buy the stocks of different companies in many industries to diversify their portfolios. But, she says, mutual funds are a better option for individuals with a limited knowledge of investing, a small amount of money, and a discomfort with the ups and downs of the stock market. Bottom line: individual investors should choose investments that best fit their needs. Asserts Echols: “Your choice should depend on what’s most important for you, but the key is to begin investing now, whether it’s in stocks, mutual funds, or both.”
For Thelma and Giles Hagood of Columbia, Maryland, accumulating wealth is the goal. Over the years, Thelma has found that she can achieve her financial goals by using both vehicles. She has been investing in stocks since the 1970s and mutual funds since the 1980s.
A recent retiree from AT&T, Thelma has stashed a large portion of the Hagoods’ nest egg in stocks, mutual funds, and bonds. Their investments have produced, but they have looked at further diversifying and growing their portfolio. They have done so through Charles Schwab’s Signature Services, a club that requires personal assets of $100,000 and at least 12 commissionable trades a year with the brokerage firm.
To Thelma, the market can provide steady, rapid gains if an investor is risk tolerant. But the market can also be very cyclical. Says she: “Right now there is extreme volatility, but you must be willing to ride it out.”
Her keys to generating solid returns and reaching their goals: “Prayer, working with a broker, and a diversified portfolio.”
Tale Of The Tape: Stocks Vs. Mutual Funds
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