Shifting Fortunes - Page 3 of 7

Shifting Fortunes

Samona moved from Putnam Growth and Income to Putnam Capital Opportunities (PCOAX), which is more aggressive and invests in small and medium-sized companies. She made the change because she wanted more growth and the chance to reap higher returns in preparation for her retirement, even if she has to take some risks.”

Doing all of your investing within one mutual fund family makes sense to Brown: “As market conditions and your goals change over time, you may decide to switch mutual funds. Keeping within one group of funds will probably reduce your transaction costs.” In addition, getting to see all of your mutual funds on one statement can help with tax and investment planning.

Do the recent allegations of improper practices at Putnam trouble Brown? (For more on mutual fund scandals and their impact on investors, see “How Do the Mutual Fund Scandals Affect You?” Moneywise, February 2004.) “The company has new leadership and has put new ethical standards in place,” he says. “After talking personally with the new top executives, I’m more confident than I’ve ever been about Putnam’s funds.” Putnam isn’t the only fund family that wins Brown’s approval; he also names Scudder and American funds. In particular, he cites Scudder Lifecycle Short Range (BTSRX), Scudder Lifecycle Mid Range (BTLRX), and Scudder Lifecycle Large Cap Value (BTILX). “These are funds with an asset allocation of Scudder’s best funds. Such investments make it easier to decide on a portfolio mix,” explains Brown.

According to Traulsen, several mutual fund families offer “lifestyle” funds, which can provide a “simple solution” to developing an al
location among multiple mutual funds. Vanguard—with its low-cost Target Retirement funds aimed at investors who plan to retire around a specific year—is one such mutual fund family. Brown says, “These types of funds can provide a selection of funds for investors who do not have the money or the research time to invest in many funds. You can pick the one that’s suited for your age and your investment time frame.” Generally, the younger you are and the longer you have until retirement, the longer your money will be invested in aggressive stock funds.

“Even the most aggressive investor should hold some bonds or bond funds, though,” says Brown. “They can provide stability when the stock market turns down. I generally recommend an asset allocation of at least 20% [in] bonds and bond funds.” Brown, like Brackens, is a fan of dollar cost averaging, a practice Johnson has taken to heart. “I’ve arranged for money to be automatically invested in my mutual funds each month, and I’m hoping to increase the amount,” she says. “The more I can save now, the more I’ll have later, when I really need it.”

Not every mutual fund investor is leery of stock funds. Stanley and Terri Wade, 41 and 40, are husband and wife business partners who run a mortgage brokerage firm in Pasadena, California. “We own real estate, individual stocks, and stock funds,” says Stanley. “We’re not interested in bonds or bond