a little more caution. “My wife, D’Ann, and I invest mainly in individual stocks and stock funds,” says Derrick Snearl, a programmer-analyst at the Los Angeles Department of Water and Power. “At 37, I feel I’m young enough to be aggressive with our own funds and the money we’re investing for our two young children, ages 2 and 6.”
The market’s recent turmoil has reduced Snearl’s appetite for buying individual stocks, he says, but he still favors aggressive growth funds such as Janus Twenty, where he invests $350 each month. “The price of that fund has come down,” he says, “so my monthly statements show that I’m buying more shares. Long-term, I expect that to pay off.” At work, Snearl has a deferred compensation plan that permits him to channel money into stock funds such as Janus Olympus, RS Emerging Growth, and American Funds’ Growth Fund of America–three growth funds–and Vanguard 500 Index, a fund with a substantial weighting in financial services and technology stocks. “I’ll probably keep putting money into these funds unless something drastic happens in the market,” he says.
Snearl’s financial planner, Percy E. Bolton of Pasadena, wishes that this client were a tad more conservative. “A 20% allocation to bonds or bond funds probably would be appropriate,” he says. “Bond funds can help you avoid losses when stocks are weak, which has been the case recently.” He favors the Fremont Bond Fund and Columbia Fixed-Income Securities, both of which are well balanced and well managed, in his opinion.
Bolton recently revised his model portfolios, advising clients to spread their risks even more on the equity side. “Now,” he says, “we not only recommend growth and value funds, we also tell inve
stors to put money into blended (core) funds, which combine growth and value stocks. In addition to having some of your money managed by specialists, you should have generalists investing for you. Dreyfus Appreciation is a large-cap core fund that we like, for example.”
Investors tend to focus too much on past performance when selecting funds, according to Bolton. “Stability of management is just as important,” he says. “Why buy a fund that has done well if the manager who produced that record has left? You also should look for funds that are tax-efficient, if you’re investing outside of a retirement account.”
The funds Bolton prefers are those that are available, at no fee, through the mutual fund supermarkets offered by Schwab, Fidelity, and TD Waterhouse. “If you buy funds that have minimum investments of $5,000 or less,” he says, “you can have a portfolio of eight mutual funds with as little as $40,000 to invest.”
DRIVING THROUGH DIVERSIFICATION
But others find safety and consistent returns through the development of a diversified mutual fund portfolio. While stock funds had their ups and downs in the first half, most bond funds posted small gains (up to 4%), a result that pleased Frederick and Cecelia Carter of Westerville, Ohio. “We had about 60% of our investment assets in bond funds,” says Fred, president of