Celtics' turnaround is a good lesson for your mutuals team


June 24, 2008|By Charles Jaffe

The curse of having this job is that it's hard to go through any joyful occasion and not think about how it relates back to mutual funds.

And so, on a gorgeous sunny Thursday as the Boston Celtics' drive-by rally was cruising the streets here, it was hard not to be inspired by the Celtics' worst-to-first championship turnaround and think that investors who have been feeling pinched can figure out a similar way to bring their portfolio to victory.

It's entirely possible to approach investing the same way as the Celtics did the NBA season and final series, working in the same style to achieve lifetime goals and come away feeling like a champion.

To win the big game in investing, your fund "team" - your portfolio - must have:

*A coach and general manager who get the right players and put them in a position to succeed. This is your job, or the role of your financial adviser, creating and following an asset allocation game plan.

The investing game can be won with many different approaches. You can be conservative and defensive, aggressive and growth-minded, or some balance of the two.

Coaching your investments also involves making adjustments midgame or midseason deciding what's working and what the opposition - in this case, the forces of the market - has done to impede your progress. You must also decide when to try to run up more points to put the game away or to protect your lead because the game is won.

*Enough playmakers to score points. Build your portfolio by setting return expectations, and relying on certain investments to deliver. Your core selections will play different positions - they could be hyperaggressive or ultraconservative depending on your time horizon and needs - but their potential determines the kind of score you can put on the board.

Like the Celtics' "Big Three" of Kevin Garnett, Paul Pierce and Ray Allen, your central investments must be ones you can build your game plan around, where you can be comfortable giving them the burden of carrying the biggest chunks of your money.

*Support players for flexibility. In basketball, these guys support the stars so that the team can survive when the big guns are not generating offense. In your portfolio, these are the issues that diversify your holdings. They may not play a starring role, because they're often too volatile, but they keep things rolling; if domestic and international large-cap funds are your core holdings, for example, the support players will be the emerging markets, sector and income funds that spread out the risk.

*Players who know their job (and don't try to do more). Role players are key to a team or a portfolio. You can't win in the long run with all growth-oriented funds any more than a basketball team could win putting three-point guards on the floor.

Every fund on your team should have a specific job. If they drift unexpectedly from one type of assets to another, or prove incapable of delivering results that are representative of their asset class, it's time to get funds that are a better fit.

*Chemistry. One thing that was clear from watching the Celtics was how much the players loved working together. Some mutual funds don't play well with others, either because they do several jobs - owning an allocation of stocks and bonds that may tilt them in a direction different from what you expect - or because they have too much overlap and have the same strengths. When that happens, your portfolio is less diversified than you expect, and you could pay the price for that down the line.

*Quality at every position and good backups. Even in the categories where you expect lower returns - like money market funds or bond funds - the key is finding issues that can meet your expectations for the category. If you have a great stock-fund portfolio but supplement it with a high-cost, lagging money market fund, you're not going to score as much as you could.

Too many mutual funds in an asset class can be a problem, flattening returns for the group and delivering index-like returns at an actively managed price. That said, many investors like having at least two funds in an asset category. If you're picking a backup, look for different styles, so that you can enjoy the volatile star of the category and the consistent, steady player too.

*A game plan and a goal. In investing, falling short of your goals can mean adjusting your lifestyle forever. Play the investing game with concrete targets, things you want your money to achieve, and the time frame to reach those goals. Then design a strategy (or strategies, because you may have one plan for college savings, another for retirement and so on) that leaves you feeling confident you can rack up enough points before time runs out.


Charles Jaffe is senior columnist for MarketWatch and the host of Your Money Radio ( www.yourmoneyradio.com). He can be reached by mail at Box 70, Cohasset, MA 02025-0070.

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