Reconsider your retirement portfolio

January 12, 1994|By Andrew Leckey | Andrew Leckey,Tribune Media Services

If you do it yourself, do it right.

The new year is the perfect time to examine the investments in your self-directed retirement account. Whether it's an individual retirement account, a Keogh plan for the self-employed or a self-directed company 401(k) plan with a variety of options, make necessary adjustments for growth in 1994.

There are plenty of ways to go with a typical $40,000 retirement portfolio.

"The preferred mechanism for a self-directed retirement account is mutual funds, since few investors have the ability to make necessary long-term stock selections and mastermind the changes," advised Eric Miller, chief investment strategist for Donaldson Lufkin & Jenrette. "Try not to be a market timer, unless it appears we're going into an extreme condition of accelerated inflation or deflation."

Miller would put $10,000 of the hypothetical $40,000 retirement portfolio into an aggressive growth stock fund; $10,000 in a "value" stock fund (investing in under-priced, out-of-favor stocks); $5,000 in an international stock fund; $5,000 in a domestic bond fund; $5,000 in an international bond fund; and $5,000 in a money-market fund.

As the investor reached 55 years of age, Miller would change the composition to 60 percent stocks and 40 percent income. A 65-year-old would have a 50-50 split.

"Get out of any cash you're holding, for cash has very little place in a retirement account," asserted John Rekenthaler, editor of the Morningstar Mutual Funds investment advisory in Chicago, who feels your money should be working more aggressively. "Don't do a whole lot of trading in your account -- definitely no more than a 25 percent turnover -- but instead carefully monitor the progress of your sensibly chosen investment mix."

Rekenthaler recommends that a younger retirement investor put 20 percent of the $40,000 into Scudder Global Fund, 20 percent in Fidelity Disciplined Equity Fund; 20 percent in stock-and-bond USAA Mutual Income Fund; 15 percent in Third Avenue Value Fund; 15 percent in Janus Mercury Fund; and 10 percent in Templeton Developing Markets Trust.

An older investor would choose a portfolio of 25 percent diversified Fidelity Asset Manager; 20 percent in Invesco Industrial Income; 15 percent apiece in bond funds FPA New Income Fund, T. Rowe Price Spectrum Income Fund and Benham GNMA Fund; and 10 percent in stock-and-bond Vanguard International Growth Fund.

"More and more statistics indicate that, over a period of 10 years or more, equities outperform bonds," explained Brad Hitchings, senior editor for The Outlook, an investment letter of Standard & Poor's based in New York City. "Life spans and retirement years are increasing, so you may run out of income if you stick too closely to income-producing retirement account investments and overlook growth."

In individual stocks, younger aggressive investors might select shares of Novell Inc., SunAmerica Inc. and the closed-end Chile Fund, advised Hitchings. His long-term capital appreciation choices include H&R Block, General Electric and Procter & Gamble, while income investors should consider Montana Power, Peoples Energy and Union Electric.

"Save regularly in your retirement account and remain focused on long-term objectives, which will require some risk," counseled Eric Kobren, editor of the Fidelity Insight newsletter based in Wellesley, Mass., which follows Fidelity funds exclusively. "As you approach retirement age, get more conservative, since you won't have as much time to recover from a market correction if one occurs."

For a younger investor, Kobren would divide a Fidelity retirement portfolio among its Value Fund, International Income Fund, Small Cap Stock Fund and Spartan Short Term Bond Fund. Older investors should consider Fidelity Capital & Income Fund (a junk bond fund), Equity Income II, Small Cap Stock Fund, Short Term Bond Fund and International Growth & Income Fund.

If your retirement account offers limited options, avoid mistakes.

"In company 401(k) plans, investors tend to put too much of their money in low-yielding guaranteed investment contracts (GICs) or their employer's stock, so they either don't receive enough return or don't have enough diversity," warned Gerald Townsend, a financial planner.

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