Long-Distance Funds - Page 3 of 6

Long-Distance Funds


Index, charges investors a scant .18% per year. The average domestic stock fund takes 1.50% per year from their shareholders. (Vanguard 500 Index has been so popular that rival Fidelity cut the fee on its Spartan 500 Index [FSMKX] to 0.19% last year, enhancing its competitive position.)

“I also hold Vanguard Small Cap (NAESX) and Vanguard Mid Cap (VIMSX) index funds,” says Miller. On the bond side, he owns Vanguard Total Bond Market Index (VBMFX), which holds a mix of top-quality bonds.

“In addition,” says Miller, “I have some actively-managed funds such as Vanguard International Growth (VWIGX) and Third Avenue Value (TAVFX).” All of these funds have done well during good times and not too badly in down markets. Miller says that he recently discontinued his investment in Legg Mason Value (LMVTX), despite its superior long-term record, because he is concerned about high fees.

Search for staying power. According to Miller, he has at least matched, and usually beaten, the market since he’s been doing his own fund picking. Nevertheless, he periodically seeks advice from LeCount Davis, a certified financial planner in Bethesda, Maryland, who maintains that several factors should be considered while choosing mutual funds.

“Instead of the one-year or year-to-date return,” says Davis, “we look at three- and five-year performance. That will give a better idea of how a fund might do in the future. The funds we recommend must meet or beat the category averages.” That is, a large-cap growth fund that
lags behind the large-growth category won’t be recommended. “We also look at the strength of a fund’s management and the way a fund allocates its money,” says Davis. If a fund is supposed to be a large-growth fund, for example, he will examine its top holdings to see if they’re the kind of large-growth stocks he wants his clients to own.

“Most important is the risk in a fund,” says Davis. “We have buy, hold, and sell lists. There are no funds on our buy list that have above-average risk levels, as ranked by Morningstar.”

Lower-risk funds might not shoot out the lights during a bull market, but they’re more likely to hold up in bear markets and reward long-term investors. “If a fund got through the 2000–2002 era, after the technology stock crash, it probably can get through another downturn,” says Davis.

Among Davis’ recommendations are Vanguard Wellesley Income (VWINX) and Vanguard Wellington (VWELX), a balanced fund, meaning that it holds both stocks and bonds, as well as the Dodge & Cox family of mutual funds.

Keep good company. Although he focuses on performance and expenses, Miller pays attention to other factors, too. “I’ve tried to keep away from funds that are under investigation when I read these reports,” he says. “In fact, I have dropped some funds that have been named in published arti

Investing for Janae has become a family project, with Victoria’sparents and sisters contributing to the college fund.

Look for the long term. Bragg says he was concerned when the stock market went down, but relieved when his balanced portfolio