The Ultimate Mutual Fund Portfolio
(FORTUNE Magazine) – If you prefer to have professionals manage your money, you can use our rigorously selected mutual funds or exchange-traded funds in combination to create a diversified and relatively hassle-free portfolio. Below we list some outstanding choices in six basic categories. On the stock side, we blended a steady large-cap core fund with small-cap and international equities that add diversification and potential pop. For fixed income, our short-term fund will limit any loss of principal if interest rates keep rising (investors in the highest tax brackets might prefer a tax-exempt municipal bond fund). How to choose between mutual funds and ETFs? People who make periodic investments should stick to mutual funds to avoid the commissions on ETFs, which trade like stocks. For those investing a sizable sum for the long term, ETFs offer their rock-bottom expenses and tremendous tax efficiency. --Y.R.
TOTAL STOCK MARKET Vanguard Total Stock Market Index VTSMX 5-year avg. return -0.7% Expense ratio 0.19% Yield 1.64% With nearly 3,700 stocks in one low-cost basket, this fund serves as a solid anchor for almost any portfolio. Its large dose of small stocks has helped it edge the S&P 500 by more than one percentage point over the past five years. ETF ALTERNATIVE Vanguard Total Stock Market VIPERs VTI The broad market at bargain expenses.
VALUE STOCK T. Rowe Price Capital Appreciation PRWCX 5-year avg. return 13.3% Expense ratio 0.78% Yield 1.46% Manager Steve Boesel focuses on reducing risk by combining large-cap stocks with a liberal smattering of convertibles and some bonds. That conservative approach won't keep up with hot markets but has produced steady gains even in rough times. ETF ALTERNATIVE iShares Russell 1000 Value index IWD Large caps with low price-to-book ratios.
SMALL-CAP EQUITY Third Ave. Small-Cap Value TASCX 5-year avg. return 15.2% Expense ratio 1.11% Yield 0.40% This fairly concentrated portfolio, run by Curtis Jensen, takes a tax-efficient buy-and-hold approach, loading up on businesses with strong balance sheets that trade for less than Jensen's estimate of what a private buyer would pay for the whole company. ETF ALTERNATIVE iShares S&P SmallCap 600/BARRA Value IJS Wide exposure to the small-cap universe.
FOREIGN VALUE Dodge & Cox International Stock DODFX 5-year avg. return 11.7% Expense ratio 0.77% Yield 0.78% Just four years old, this fund established itself with a 32% return last year--tops in its category. That pace may be hard to sustain, but modest expenses, low turnover, and a veteran stock-picking team should help the fund continue to shine. ETF ALTERNATIVE iShares MSCI EAFE Index Fund EFA Some 800 stocks from around the globe.
FIXED INCOME Vanguard Short-Term Investment Grade VFSTX 5-year avg. return 5.5% Expense ratio 0.18% Yield 3.42% An assortment of good-quality corporate issues with short maturities makes this fund less sensitive to interest rate moves than many others. And its attractive expense ratio beats the category average by eight-tenths of a percentage point. ETF ALTERNATIVE iShares Lehman Aggregate Bond AGG A proxy for the investment-grade universe.
ALTERNATIVE ASSETS Pimco All-Asset PASDX 5-year avg. return 11.6% Expense ratio 0.86% Yield 5.41% For instant asset-class diversification, this fund of funds (which opened in mid-2003) does the trick, gathering an eclectic mix of Treasury inflation-protected securities, real estate, commodities, foreign bonds, and more. ETF ALTERNATIVE iShares Dow Jones US Basic Materials IYM Lots of chemicals and commodities. 12-month. Since inception. |
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