Mutual Funds
Great funds for retirement
May 17, 2001: 8:01 a.m. ET

A list of recommended mutual funds that you can buy and own for years
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - Admit it. You're clueless when it comes to retirement planning. You can't name a single fund in your 401(k), and you can't decide what to put in your IRA.

You're not alone. Thousands of investors are running blind as they build their long-term savings. They make world-class mistakes with their money, whether it's choosing the wrong asset allocation or buying a fund that's been on a hot streak.

graphic"The biggest mistake people make is they put too much weight on short-term performance," said Mari Adam, a certified financial planner from Boca Raton, Fla. "People are not investing aggressively enough, or they're trading too much, which is very damaging to their long-term returns."

A recent study shows that fewer Americans are saving for retirement, and workers feel less confident they'll have enough, according to the Employee Benefit Research Institute (EBRI), a non-profit group based in Washington, D.C.

But there is a way to make things easier for yourself. You can choose one of the following funds recommended by certified financial planners and mutual-fund analysts.

The funds are ones an investor could buy and own for a long time without a lot of headaches.

    A new study shows the number of workers saving for retirement is falling, according to the Employee Benefit Research Institute.
"All of these funds you could own for 10 or 20 years," said Russ Kinnel, an analyst at Chicago fund-tracker Morningstar. "With all of them, I have a fair amount of confidence that things will go well for a long time."

They are also funds that make a nice fit in your IRA or 401(k).

"A fund like Harbor Capital Appreciation made 18.3 percent over the last three years," said Tom Grzymala, a certified financial planner from Alexandria, Va.

Large blend funds and value funds

Kinnel said Vanguard Total Stock Market is one of the "ultimate low-maintenance funds" you can find. The fund, with $14.6 billion in assets, buys and holds most publicly traded stocks, giving you broad exposure to the U.S. market, according to Morningstar.

graphic"It has the diversification of the whole U.S. market plus low costs, and those advantages will be here 10 years from now," Kinnel said. "You can buy it and forget about it."

Another option is Fidelity Equity Income II, a large value fund with low volatility that is in a lot of 401(k) plans, Kinnel said. It owns a lot of dividend-paying stocks that may be boring but will weather rocky years better than riskier funds.

The fund's manager, Stephen DuFour, did a good job turning around Fidelity Balanced, and has a good track record picking stocks, Kinnel said.

American Funds' Fundamental Investors is another large value fund that delivers the goods when it comes to stock picking, Kinnel said. It's a value fund that isn't afraid to branch into growth sectors, with a 16 percent weighting in technology. The fund has a team of managers at the helm.

"American Funds has a longer-term focus than their competition," Kinnel said. The managers didn't tread into Internet stocks back in the heydays of the late 1990s, and so lagged the S&P 500 for several years. But at the same time, the fund weathered 2000 better than most, earning 4 percent.

  graphic ADAM'S FUND PICKS:  
  • Dreyfus Appreciation
  • Excelsior Value & Restructuring
  • Weitz Value
    Adam said she's a big fan of Dreyfus Appreciation, a large blend fund that you'll see in a lot of 401(k)s. The fund, with $3.5 billion in assets, has a portfolio of blue chips that it hangs onto for a long time, according to Morningstar. She also likes Excelsior Value & Restructuring, a large value fund, for IRAs.

    Grzymala pointed out that Excelsior Value was buying IBM (IBM: Research, Estimates) long before it became a favorite of mutual funds when chief executive Lou Gerstner helped turn things around.

    And Grzymala likes Selected American, a top fund in its large value category that hunts for companies with great management at a reasonable price, according to Morningstar.

    "Selected American is just a great fund," Grzymala said.

    Don't forget mid-caps

    A good mid-cap value bet is Oakmark Fund, managed by star manager Bill Nygren, Kinnel said. The fund is more diversified than the Vanguard or Fidelity funds and a little bolder in its choices, Kinnel said. The fund, with $13.4 billion in assets, beat the S&P 500 by 16 percent in 2000 with a profit of 7.5 percent as most of Wall Street was hemorrhaging.

    "Bill Nygren is just a brilliant investor," Kinnel said.

    graphicMoving to more aggressive options, Kinnel likes T. Rowe Price Mid-Cap Growth, managed by Brian Berghuis. The fund is less bold than other mid-cap options but it held up better in 2000 by tempering its bets. The fund earned 7.5 percent in 2000, beating the S&P 500 by 16.5 percent, according to Morningstar.

    "It's a very tame approach to growth, but in a way I kind of like that," Kinnel said. "A lot of funds got carried away with 60 percent, 70 percent in technology. This fund won't throw you."

    Sixth on Kinnel's list is Vanguard Capital Opportunity, a "contrarian growth" fund that takes a different approach to stock picking. It looks for cheap stocks in beaten-down sectors and earned 18 percent in 2000, Morningstar said.

    "It has some financial stocks and some other non-growth sectors so it's not a pure (growth) play, but who cares? It's a great fund and it's not going to blow up on you," Kinnel said.

    Grzymala said he still likes aggressive funds like Janus Mercury for young investors who have a lot of time until retirement. He also likes PIMCO Mid-Cap Growth, Baron Growth, and Fremont U.S. Micro Cap.

    Value with a twist

    Manager Mason Hawkins of Longleaf Partners is another stock picker not afraid to venture into different territory, Kinnel said. The mid-cap value fund, with $4.07 billion in assets, earned 20.6 percent in 2000 and beat the S&P 500 by nearly 30 percent.

    graphicFor example, the fund wasn't afraid to hang onto top holding Waste Management (WMI: Research, Estimates) during some dark times for the stock, Kinnel said. The fund also isn't afraid to take big stakes in stocks it believes in: About 11 percent of the portfolio is in Marriott (MAR: Research, Estimates), while 12 percent is in Waste Management and 6 percent is in GM (GM: Research, Estimates).

    Likewise, veteran manager Marty Whitman at Third Avenue Value looks at the investing world differently, Kinnel said. The small-cap fund, with $2.1 billion in assets, earned 20 percent in 2000, Morningstar said. It has a 10-year annualized return of 16 percent.

    Looking overseas

    Of course, retirement investors shouldn't neglect international exposure, and Kinnel's last two choices, Tweedy, Browne Global Value and EuroPacific Growth, are in Morningstar's "foreign stock" category.

    Check your mutual funds on

    EuroPacific Growth, with $28.96 billion in assets, owns the "biggest and the best" international companies and hangs onto them, according to Morningstar.

    Tweedy, Browne Global Value, with $3.5 billion, likes value-oriented stocks and hedges its foreign currency exposure to lower volatility, Morningstar said.

    Both Adam and Grzymala are fans of Artisan International, another "foreign stock" offering with a great record. graphic

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