Investor, Know Thyself

Yes, you can achieve positive returns in today's turbulent market. But it starts with you and knowing your "money personality."

both stocks and bonds at all times.

One investor determined to keep a balanced approach is Kenneth W. Arinwine, a 68-year-old retired school principal in Oklahoma City. He’s comfortable with a portfolio that consists of 50% bonds, 40% stocks, and 10% cash. “A few years ago,” says Arinwine, “I was almost entirely invested in stock funds. Then I changed my strategy to a mix of stocks and bonds, and I’m glad I did. In the past two years I’ve held my own, even though the stock market has dropped.”

Arinwine’s advisor, Oklahoma City financial planner Kathleen Williams with Williams Financial Services Group, says that his portfolio was “entirely too aggressive” for a retiree. “Stocks are volatile, and a portfolio tilted toward stocks can suffer large losses. After you retire, you can’t make up those losses by investing more of your earnings.”

Before he revised his portfolio, most of Arinwine’s investments were growth stocks, especially small-company technology issues. These tend to be volatile, and many have been hammered in the last two years. Now Arinwine has only 40% of his portfolio in domestic stocks, including 15% in the Jensen (JENSX) and Clipper (CFIMX) funds, well-regarded large-company growth and value funds, respectively. Another 10% of his portfolio is invested in the Tweedy Browne Global Value Fund (TBGVX), a foreign stock fund that can buy stocks from anywhere in the world.

The rest of Arinwine’s portfolio is 50% long-term government and corporate bond funds and 10% cash, which provides him with income as well as protection against a three-peat bear market in stocks. “Each client’s situation is different,” says Williams, “and a younger investor might have more in stocks now. Nevertheless, most people should hold some bonds and cash as well as stocks in their portfolios.”

Williams is a fan of mutual fund investing, which reduces the risk of putting most of your money into an Enron or a Global Crossing. “We prefer funds that have been around at least 10 years,” she says, “with at least five years under the current manager.” Considering the highs and lows of the stock market over the past five years, such a record may indicate how a fund manager is likely to fare in the future, in good times or bad.

Don’t Abandon Stocks
Individual investors have an unfortunate tendency to buy at market highs and sell at market lows. In early 2000, when U.S. stocks were at record levels, enthusiasts couldn’t put enough money into the market. Two years of losses later, after stocks have been marked down sharply, some people are stock-shy.

Through May 2002, though, the case for investing in stocks appeared to be solid. Even after two dud years, large-company stocks have returned 6.1% for the past five years (through 2001) and 12.1% for the past 10 years (through 2001), according to Ibbotson Associates in Chicago. Even still, long-term corporate bonds returned 8.3% and 8.4%, respectively, for those time periods. Going back more than 75 years, stocks have paid off with returns of 10.7% for patient investors.

“This is a

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