With the future so uncertain and U.S. equities market as volatile as ever, where is an investor to turn,? asks business author Carolyn M. Brown.
Understandably, many people have been leery about placing their money into the market with concerns about higher interest rates, worries about a housing bubble, and fears about terrorism have many investors spooked about placing money into the market.
Yes, such variables may negatively affect the financial markets over the short run, but over the long haul the stock market still represents the best opportunity for you to expand your portfolio at rates that outpace inflation.
If you want to reap major gains in the future the key is diversification. Mix it up in your portfolio.
Sometimes people confuse the idea of diversifying with owning many different funds, so, they end up with a mishmash of investments that don’t perform harmoniously together. One model portfolio might hold mutual funds that have small-, mid-, and large-cap stocks along with real estate funds or global funds. Such an approach to investing puts you in the position so that you gain in one area of the market if it gets hot and it protects you against steep losses.
T. Rowe Price Total Equity Market Index Fund (www.troweprice.com). This is a large cap stock fund that seeks to match the return of the entire US stock market as represented by the Dow Jones Wilshire 5000 Equity Index. It has a broad portfolio of small, mid and large cap stocks. Company holdings include Bank of America, Wal-Mart and ExxonMobil.
Vanguard Total International Stock Index (www.vanguard.com). This international/global fund seeks to track the total performance of the total International Composite Index, which is a combination of indexes tracked by Europe, Pacific Rim, and emerging markets.
TCW Galileo Dividend Focused Fund (www.tcw.com). This low-fee growth fund seeks a high level of dividend income. Top company holdings include Nokia Corp., Merrill Lynch, and Conocophillips.
Cohen & Steers Realty Shares (www.cohenandsteers.com). This fund invests primarily in equity securities of real estate companies nationwide, such as Boston Properties.
Ariel Fund (www.arielmutualfunds.com). Founded and managed by John W. Rogers, a top African-American mutual fund manager and one of the foremost money managers in the world, this fund invests in stocks of smaller companies that are undervalued and are socially responsible. It seeks long-term capital appreciation.
In general when choosing a mutual fund, there are five questions to ask about each one you’re considering: 1) is the fund’s objective suited to your financial goals, 2) is the fund’s performance strong in comparison with funds in the same category, 3) how do annual fees compare with the fees of similar funds, 4) what kind of risk does the fund expose you to and can you live with it, and 5) what is the fund manager’s track record.
Once you make your picks, remember to practice dollar-cost-averaging, whereby you have a set amount of money each month taken out of your bank account (say $100) and deposited into your mutual fund account. Also, stay on top of your investments. You don’t need to even wait these days for quarterly reports to arrive in the mail, most mutual fund families have updated information right at your finger tips online.
Carolyn M. Brown is a business finance writer and editor living in New Jersey. She authored ‘The Millionaires’ Club’ and ‘Nobody’s Business but Your Own.’