Lower Fees, Higher Returns - Page 3 of 8

Lower Fees, Higher Returns

been focusing on stock funds: “Over the past few years, I’ve sometimes felt like I was the only employee around here still contributing to stock funds but I kept with it, despite all the ups and downs. You’re better off buying when prices drop and stocks go on sale.” What’s more, Kelson has concentrated his investments in the Vanguard family of funds, which has a reputation for offering funds with low expense ratios “I know you’re better off if you can avoid incurring up-front costs,” he says, “and that’s the case with these funds. In addition, I like the fact that Vanguard funds generally have low expenses.”

Up to now, Kelson’s investment choices have included the Vanguard Windsor fund (VWNDX), which follows a value style, and the Vanguard Primecap fund (VPMCX), which holds both growth and value stocks. He also invests in the Vanguard Wellington fund (VWELX), which mixes high-grade bonds with blue-chip stocks. “As I turn 40 this year and come closer to retirement, I plan to become a bit more conservative and start investing in a Vanguard bond fund, too,” he says.

Retirees need to pinch pennies, too. Low-cost funds work for those already tapping their portfolios, as well as for investors in the buildup stage. L. Dwight Johnson recently retired after a 25-year career with a local phone company. “Back in the early 1980s, all the stock I owned was AT&T,” says Johnson, 55, who lives in Creve Coeur, Missouri. In the early 1990s, he was still totally invested in telecom stocks, including the so-called Baby Bells. “I looked at the trends in the industry,” says Johnson, who is currently working on a start-up company of his own. “There was all this talk about bandwidth, but I was convinced at the time that it wasn’t going to take off.

I thought other industries were more attractive, such as pharma
ceuticals, because of the aging of the Baby Boomers.” So Johnson decided to diversify: “I shifted money into mutual funds right before telecom stocks tanked.” Telecom stocks have been hard hit because of the inundation of the industry in recent years, so Johnson’s move into funds helped him escape the worst of the market collapse.

According to Johnson’s investment advisor, fees aren’t the driving force in their selection of mutual funds, but they are a guide. Johnson and his advisor look for consistency of returns to see how a fund ranks within its sector. They find out if the management team that deserves credit for the returns is still in place. If a fund just has one person at a computer picking stocks, they may think twice about that particular fund.

Johnson invests in Dodge & Cox (DODGX), a large-cap fund (one that invests mainly in large companies); Hartford MidCap (HFMCX) and Olstein Financial Alert (OFAFX), both mid-caps; and Liberty Acorn (LACAX), a small-cap fund. At the suggestion of his advisor, he also increased his exposure to international stock funds earlier this year because the U.S. dollar was expected to weaken, which it