Mutual Funds/Mutual Fund Portfolio

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Question
Hello:

What types of mutual funds would be suitable for someone in his late 50s or early 60s to have in his portfolio?

You do not need to suggest specific company names of mutual funds.

I thank you for your reply.

Answer
Dear Kenneth--

A well-to-do older person should ideally have a well-diversified portfolio. That means at least a smattering of almost everything--foreign stocks, foreign bonds, small-cap stocks. Even though such investments may be especially risky. The wealthier a person is, the more exposure he or she might have to riskier assets.

BUT

in general, as investors most older people should be either (a) conservative or (b) very conservative. We oldsters don't have that much time to make up losses.  Someone once told me: Don't lose a lot of money after age 60. I would modify that to: Don't lose a lot of money. Ever.

There's a pernicious myth that everyone needs a huge exposure to the stock market. Bull. The stock market is dangerous. Bear in mind at all times that

THE STOCK MARKET CAN GO DOWN AND STAY FOR A LONG, LONG TIME. FOR YEARS, IN FACT.

Yes, your portfolio should contain stocks--or, better, stock mutual funds. I would focus on blue chip stocks and mutual funds that own blue chip stocks. Solid companies that pay generous dividends. That have paid them for years. That have, in fact, regularly raised their dividends.

Let me sing the virtues of dividends,

First, they give you $$$. Right now, when interest rates are pitiful, a nice regular helping of cash is devoutly to be desired. Dividends, in fact, have accounted for a huge percentage of stock-market gains over the years. Maybe 40%.

Second, dividends help protect a stock against going down much. If a stock that pays nice dividends goes down, the dividend in fact goes up--as a percentage of the purchase price. So the stock becomes more and more of a bargain. If a stock that sells for $50 has a 2% yield, and the price goes down to $25, the yield goes up a lot. To 4%. And buyers--there are always buyers--will become interested. Assuming the dividend remains intact.

As for bonds, keep your maturities short. And keep your credit quality high. Sure, diversify. Buy junk bonds, foreign bonds. But concentrate on short-term and high-quality. William Ruane, who ran the Sequoia Funds, once told me that he kept $500,000 in supersafe Treasury bills at all times. That gave him the courage to invest a lot of money in the stock market.

I hope this helps!

Warren  

Mutual Funds

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Warren Boroson

Expertise

Author of "Keys to Investing in Mutual Funds" (Barrons), "Ultimate Mutual Fund Guide" (Probus), "How to Pick Stocks Like Warren Buffett" (JKLasser), and "The Reverse Mortgage Advantage" (McGraw-Hill). Former financial columnist for Gannett News Service.

Experience

Author of 20 books; winner of 1996 Personal Finance award from Investment Company Institute and Washington University. Formerly on staffs of Money and Sylvia Porter's Magazine. Had a radio program (on WEVD) about mutual funds and a newsletter, FundDigest.

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