How to use the MONEY 100
Use our list to help build a balanced investing portfolio.
NEW YORK (CNNmoney) - So we've given you 100 funds. Now what? Here's how to find the best ones for your needs.|
If we know anything after the past few years, it's that no one really knows the stock market. It went up faster and further than anyone expected in 1999, then took an astonishing dive. During the tech rally, value stocks and small-cap names lagged the increasingly popular growth picks by so much that pundits deemed them passe.
But guess which stocks surged when the growth leaders went bust? That's what makes concentrated market bets so risky. Try to remember as you sift through the MONEY 100 that the real goal is to find the right balance of mutual funds for a well-rounded portfolio that maintains your exposure to a variety of asset classes and investment styles.
So even the most aggressive go-getters should consider stashing at least some money in lower-key value-priced funds. And conservative types who are most comfortable with name-brand blue chips like Merck (MRK: down $0.50 to $66.50, Research, Estimates) and Citigroup (C: up $1.26 to $48.20, Research, Estimates) might want to venture into small-cap funds as well.
The process starts in much the same way as when you buy new furniture or add to your wardrobe: First, figure out what would work well with what you already have. We've organized our MONEY 100 listings into five groups: large-cap, madcap, small-cap, international and specialty funds.
We also provide finer distinctions, noting, for instance, whether a fund focuses on large-cap growth or small-cap value stocks. That's because it's important to put performance in context. Back in 1999, even the best value managers couldn't keep up with a merely mediocre growth fund.
Fast-forward to today. Go-go growth funds haven't been able to stay in the black this year, let alone keep up with the value competition. (The typical large-cap growth fund has lost nearly 30 percent over the past year, while the average large-value offering is up more than 7 percent.) Each individual fund report should give you a clear sense of how a fund plays within its style parameters.
An ideal asset allocation is a highly personal thing, and the numbers vary greatly depending on your age, your risk tolerance and whether you're saving for college in 10 years or retirement in 20. For an in-depth look at the issues, check out Lesson 15 of the MONEY 101 curriculum. For online asset-allocation tools, Fidelity, T. Rowe Price and Vanguard also are excellent resources.
Click here to check your funds
First things first: Don't get bogged down in the details. The most important thing is to decide how much to allocate to stocks in the first place. While equities are key for long-term growth, remember that bonds are the rock providing stability to your portfolio. After all, while the S&P 500 is down 14.3 percent over the past year, the typical intermediate-term bond fund has gained 11.9 percent.
Of course, if you're in your twenties and saving for a distant future, you'll want maximum growth potential and you can handle a down year or two in the market, so perhaps you'll shelter as little as 5 percent or 10 percent of your overall assets in bond funds. But if you've been retired for a while, you may well have more than half of your assets stashed in bonds, for safety and income.
Once you've settled on an appropriate stock stake, look to large-cap funds first. For most investors, the large-cap names that dominate the market should be the main course. Then you can sprinkle on smaller caps and international stocks for diversification and oomph.
The more risk you can stomach, the more you might add. Try MONEY's asset-allocation calculator. Fill in the brief questionnaire on the Web site to build your own allocation. It asks you to consider how soon you'll need the cash and how much wiggle room you have should your investments fall short of your expectations.
You also need to gauge your risk tolerance, and a pointed question helps you do just that: Have you reacted to the downturn by buying, selling or sitting tight? These breakdowns cover the essentials. Enthusiasts can put extra work into this exercise by carefully considering whether to overweight large-cap value funds vs. large-cap growth, or pondering the advantages of pure mid-cap funds over small-caps. But don't be ashamed to take the easy way out: Buy a couple of broadly diversified funds -
such as index funds and others in the "blend" camp between growth and value -- and relax.
Three classic ways to allocate your assets
For a timid investor with a short horizon -- three to five years -- and little spare cash to make up for the inevitable mistakes. Want a quick-and-easy portfolio? For stocks, consider teaming large-cap Vanguard 500 Index with two low-priced offerings like T. Rowe Price Small-Cap Stock and T. Rowe Price International Stock. Or if you already own a large-cap growth-oriented fund such as Smith Barney Aggressive Growth, split your large-cap allocation between that and a staid value play like Dodge & Cox Stock.
For an investor with a goal that's five to 10 years away -- and a reasonable amount of risk tolerance and wiggle room -- Vanguard Total Stock Market Index and Fidelity Fund, common 401(k) offerings, both cover the large-cap area nicely.
Maybe you'll divide the smaller-cap stake between Bogle Small Cap Growth and Weitz Value, two different investment strategies that keep risk in line. Pair Tweedy Browne Global Value with American Century International Growth for diversified foreign-stock exposure, or put the 15 percent into a blend pick like Artisan International.
For a daredevil who laughs at down markets, buys on dips and has at least 10 years to go before tapping into the investments, Legg Mason Value is a dramatic take on large-value investing, and White Oak Growth is about as aggressive as large-growth funds get. On the smaller-cap side, MSIF Mid Cap Growth and Royce Micro-Cap go to growth and value extremes, respectively.
Consider putting a bit of the foreign stake in SSgA Emerging Markets, if you dare, but allocate most to a developed-market fund like Julius Baer International Equity.