12 classic funds to consider when making next gift list

Dollars & Sense

December 28, 2003|By MORNINGSTAR.COM

Leave it to the financial community to put a price tag on Christmas. PNC Advisors Christmas Price Index calculated the price of 12 drummers drumming on down to a partridge in a pear tree. It had grown to more than $65,000 this year - as much as a luxury SUV.

If you're looking for an alternative to dancers and pipers, consider some of these classic mutual funds:

1. and 2. Balanced funds can play a role in many investors' portfolios. Whether it's funding a college UTMA account or providing that first investment experience, balanced funds offer instant diversification all tied up with a bow. Two of my favorite balanced funds are Dodge & Cox Balanced (DODBX) and Oakmark Equity & Income (OAKBX). Both have long-term outstanding track records.

3. and 4. Total-stock-market index funds play a core role in many investors' portfolios. It's a cheap way to buy the whole market. Two of my favorites are Vanguard Total Stock Market Vipers (VTI) and Vanguard Total Stock Market Index (VTSMX). If you want to dollar-cost average, I'd recommend the latter option because you'll pay less in brokerage fees. Vanguard Total Stock Market Vipers is an exchange-traded fund that trades like a stock. Vanguard Total Stock Market Index is a mutual fund, so trades are made only at the close of the business day.

5. Vanguard Short-Term Corporate (VFSTX) is a fine choice for a defensive bond fund. With an average effective duration of 2.02 years, a yield of 4.15 percent, and less sensitivity to interest rate increases than Treasuries, it makes a solid core holding in many portfolios.

6. If you want an intermediate bond fund for a core holding, you can't do much better than Bill Gross' PIMCO Total Return (PTTRX). If you work with an advisor, you can get into the D shares of PIMCO funds with no front-end load. Many of you will have this fund as an option in your company retirement plan.

7. If you're ready to broaden out to small-cap stocks, but you want to limit volatility, then T. Rowe Price Small-Cap Stock (OTCFX) may be for you. I've come to appreciate T. Rowe Price's steady hand and low expenses for many investment alternatives.

8. and 9. International funds have finally perked up this year. When the U.S. dollar is weak, you may get more mileage out of a foreign fund. I like Dodge & Cox International Stock (DODFX) as a core holding. If you want to branch out beyond a core holding, Dimensional International Small-Cap Value (DISVX) captures the small-value effect of the international markets. Dimensional funds or DFA funds are sold only through approved advisors. (To learn more about the small-value effect, go to DFA funds' Web site.)

10. and 11. If you're looking for a mid-cap value fund, I have two recommendations - one's a sector fund and one is a more well-rounded mid-cap value fund. CGM Realty (CGMRX) is the REIT (real estate investment trust) sector fund. Real estate offers a diversification benefit to your portfolio because the underlying assets don't have a perfect correlation with stocks or bonds. The well-rounded mid-cap fund is Longleaf Partners (LLPFX). It has a solid track record and relatively low expenses.

12. If you want a fund for growth, American Funds Growth Fund of America (AGTHX) fits the bill. The F shares are no-load if you work with an advisor. Although this fund is a behemoth, it has a good track record and relatively low expenses.

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