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Investing Live: Mutual Funds
with Gregg Brewer
Editor, Value Line Mutual Fund Survey
Monday, April 9, 2001; 1 p.m. EDT
Gregg Brewer, Valueline Inc.'s manager of mutual funds research, talks about general investments and putting your funds together.
Many investors are reeling after a quarter in which tech sector losses were felt across the board. Brewer is available to give guidelines from the basics of mutual funds to how to set up your portfolio. He can also discuss the market outlook for the rest of the year.
Brewer, who has a masters of science degree in social work from Columbia University, started out as a mutual fund analyst at Value Line. He quickly worked his way up to become the manager of mutual funds research. He oversees The Value Line Mutual Fund Survey, which is published every two weeks, and the monthly Value Line No-Load Advisor. In addition, Brewer provides regular content for Value Line's Web site, www.valueline.com.
Brewer takes an active role in both writing for and editing the Value Line publications. He also writes the foreword for the annual New York Institute of Finance Guide to Mutual Funds by Kirk Kazanjian, which features Value Line data.
The transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control
over Live Online discussions and choose the most relevant questions for
guests and hosts; guests and hosts can decline to answer questions.
Virginia:
What are some basic things to know about mutual funds or to start investing in mutual funds? Thanks - Mutual Fund 101 dummy
Gregg Brewer: The single most important thing you need to know about investing in mutual funds is, drum roll please, that you have to have a plan.
A plan is, by far, the most important aspect of any investment program. Although outlining a plan for you now is beyond the scope of this Q/A session, you need to take a number of things into consideration including:
Age
Marital Status
Current Finances
Risk Tolerance
And Your personal investment tastes
There are more things, but you must make sure that you have a plan.
Also, make sure that every fund you buy fits into your plan. Don't get stardust in your eyes and buy haphazardly. Everything has a place and everything in its place.
Vienna, Va.:
I'm just starting off in looking at investments. I'm 25 and have a full time job. I do not own any stocks nor does my company offer any to their employees. How should I strategize in saving money and where can I go to set up my portfolio?
Gregg Brewer: It's great to start early. Good for you. The early bird gets lots of money. It's too bad that your job doesn't offer any tax-advantaged savings vehicles, but that doesn't mean that you don't have any choices. Look into opening an IRA or a Roth IRA. You can put $2,000 a year into each and the money grows "tax free." There are differences between the two that you should take a closer look at because one may be better than the other in the near term. However, not knowing anything about your finances, I would strongly suggest a Roth IRA. Although the money you put into this type of account is after taxes (which means you have already paid taxes on the money), you get to pull it out without paying income tax once you retire. But research both options before you make a choice.
As for money outside of these accounts, make sure you have about 6 months worth of living expenses saved in a liquid account such as a money market fund. This money is the just in case fund. Once you have this down, save about 10% of your salary each month (trust me, after a couple of months, you won't miss it). Your best bet is to start an automatic investment plan with a mutual fund.
That brings me to mutual funds. I assume that you don't have a whole lot of money right now. That said you should probably stick to some broad-based index funds. Vanguard is known for their index funds, but you can get index funds from almost any family. Some will come cheaper than others. Try to put some money into bonds and some into stocks. If you can't find a bond index fund (there are less of these available), try a generic intermediate-term bond fund.
Good luck
Bethesda, MD:
Gregg -- when you think the market will truly "recover" and right itself? If I'm an investor with a chunk of new money to invest, should I wait & sink the money in a "safe" place like a money market/T-bill account and wait this out or invest knowing that a fund could drop another 25% in the next quarter? Thanks.
Gregg Brewer: If I knew when the market was going to recover I wouldn't be here typing to you, I would be a millionaire. So I can't help you that answer (but I sure wish I could), but I might suggest something for that new money. I'm going out on a limb, but perhaps you should figure out what it is you want to buy and scale into it. So, if you have $25,000 in cash burning a hole in your pocket, figure out where you want to invest, lets say a small-cap growth fund, and put $5,000 into the fund each month for the next 5 months. Or $2,500 over the next 10 months. Anyway, you get the idea. Dollar cost average your way into the fund you are looking to add. No one can predict when the market will turn, just stick to your long-term plan and forget about the market. I know that's a hard thing to do right now, but over the long haul, the market trends upward.
Peterborough, N.H.:
I'm looking to invest some money for long term (approx 20 years) Capital gain. I not not mind riskier short term funds if there is a strong long term payback. I do not want to be consantly watching sectors to try to decide what is hot or not, so I don't intend to move the funds around once invested. It appears the S&P500 manages to beat the average return of most other fund categories. Questions: Am I being wise by not moving my money once I've selected the fund(s) it or do I need to be constantly monitoring performance? (If it is the later how do you know when to get out vs. waiting out the dips?!) With the S&P500 stacking up well with most other funds how do I find other fund(s) that will get better returns over the long term or should I stick with this broad-based fund?
Gregg Brewer: The question I see here is, "should I invest in a way that makes sense to me, or get caught up in the ebb and flow of the market?"
I would recommend that stick with your "boring" S&P 500 Index fund if you like S&P 500 Index funds. You won't have to watch the market (a tiring and sometimes painful thing to do) and you can focus your time on saving without the hassle of trying to pick the hottest funds (a feat that few people do well).
You plan is great and stick with it. Keep putting money away in the S&P 500 Index fund of your choice and you should be just fine.
Laurel, Md.:
What's your opinion on gold-oriented mutual funds, particularly Vanguard's?
Gregg Brewer: Gold. Hmm. What does one really say about gold. If you are the doom and gloom type, you might consider gold funds as a hedge against the end of the world. I, however, am not a big fan of "hedging" a portfolio. My recommendation would be to create a well diversified portfolio, focusing on growth not the end of the world.
But, let's assume that you do want to own a gold fund, just in case the China situation gets out of hand. Vanguard is a great family and their gold and precious metals fund has been a strong relative performer over the long term. Keep in mind, however, that, on an annualized basis, this "relatively strong performer" only eked out about a 4% gain over the past 15 years.
Just make sure you know what you are buying and that you are not buying because of short-term emotional reasons.
Washington DC:
You may put $2000 per year into BOTH a Roth IRA and conventional IRA? That's news to me.
Gregg Brewer: No, I'm sorry if I skipped over that too quickly. You can put $2,000 per year into a Roth IRA or a regular IRA, but not both. My point is that, depending on an investor's financial situation, one might make sense over the other. So investors should not jump in without doing more research on each.
Washington, D.C.:
What are some good online sources I can go to help me set up a portfolio. I'm just a starter so should I go online or actually get consulting. And where?
Gregg Brewer: Obviously, the best place to look for anything to do with investing is valueline.com. (Sorry, that was a shameless plug.) Really, though, our site does offer a lot of information for free. You can get our "how to" manuals in PDF form, for example.
There are a host of sites out there that can help the beginner. Motley Fool is a good site for beginners, though you might find that you quickly outgrow their "jovial" style. CBSmarketwatch.com is also a good site. Although I do not use it, I am told that Yahoo finance is very good. Even some broker and mutual fund sites offer excellent tutorials and information (just remember that these folks are biased).
Look around and go for the one that you can "understand."
Gregg Brewer: As for consulting with a financial planner, it can't hurt. But whenever you speak with a financial planner or broker you have to remember that they get paid to sell you things. They are salesmen (and women). No matter how nice they are, they don't make any money if you don't buy something from them.
Arlington, Va.:
Hi. I am 22 and have about $7500 in Roth IRAs - Vanguard Special Health and International Growth. I also have about $6,000 in CDs. I also contribute $200/month in my 401K (for about 7 months now). My question is - I have $5,000 in my checking acct and $5,000 in my savings acct, which is slightly ridiculous - where should I invest my money? I am thinking of another mutual fund - non IRA - a small cap growth and/or Vanguard Total Stock Market. Do you have any advice for me?
Gregg Brewer: First and foremost, good for you for starting early. You won't regret it. Secondly, how much money do you have set aside in case of an emergency? That $5K - $10K might be just what you need to have set aside. You want that money to be liquid in case you need to it NOW! God forbid that all of your teeth fall out and your dental doesn't cover dentures. If you do decide to put some or all of that money into a fund, I would go with the Vanguard Total Stock Market Index. You have two very specialized funds in your Roth (I'm not sure what you have in the 401K) so you might like to broaden yourself out a bit.
Laurel, Md.:
I have put $2,000 into a Roth IRA this year. I also put 10% of my income, plus 3% company match, into a 401(k) plan. Can I still invest $2,000 into a traditional IRA?
Gregg Brewer: Boy I put my foot into my mouth. Let me get this sorted out once and for all. You can put $2,000 into either a Roth IRA OR a regular IRA, but not both.
Bethesda, Md.:
Hi there. I wanted to know generally what percentage of my salary should I be putting into my retirement now? I just turned 25. I started an IRA when I was 18 and switched it to a ROTH IRA. I started investing in my work 401K about 2 years ago. I almost feel by having these two investments, I'm tying up my money for 35 years down the road when I should be saving for a house now. What's a good percentage to put aside yearly and should I be putting more money into one investment versus another? I know I have the capability to contribute more to my 401K than the Roth. Does one take priority?
Thanks!
Gregg Brewer: This is a big and broad question. For the overall percentage, I would say save as much as you can afford to save. The least I would suggest is 10% of your take home salary.
As for tying up your money by investing in tax-advantaged accounts, well, you are tying up your money. That is the point of these accounts. You need to figure out your near-term and long-term goals. If your goal is buy a house, than you certainly should consider saving for it. If you only goal is to retire as soon as possible, than you should work toward that. Unfortunately, we usually have a number of conflicting goals. Figure out what you want and how much it will cost, and then work toward each goal. There is no easy answer.
With regard to a 401K and an IRA. If your employer matches your contribution up to a certain percent, than you should at least put that amount into your 401K. Doing anything else would be like turning down free money. After that it depends a bit more on how much control you want over your money. 401Ks are notoriously short on investment options, while an IRA opened with a broker would provide you with a cornucopia of options.
Chantilly, Va.:
Any advice you can give someone who is looking to invest in mutuals for the childrens college education?
Gregg Brewer: What you do depends a lot on how long you have until your child goes to college. If it is in five years or less, than you will want to be conservative. If it is longer than you have more options. My suggestion is for you to read up on 529 plans. These are relatively new plans that allow you to save for your child's education in a tax-advantaged account. There are a number of different types and variations so I can't really suggest any one program. For a starting point, check out Fidelity or TIAA-CREF, I believe they both serve as investment advisors for these types of plans. (The plans are actually provided by individual states.) 529 plans are a powerful option, just make sure to do your homework before selecting one.
Dallas, Texas:
If I am in a tech heavy mutual fund now, where should I go?
Gregg Brewer: Well, you might consider doing nothing. If you only own a tech fund, however, you might consider broadening you portfolio out a bit (or a lot). Tech is a nice sector and all, but you really shouldn't have a portfolio that only has exposure to one area of the market. Consider adding a broad-based index fund and maybe an intermediate-term bond fund.
If the tech fund is part of a larger financial plan, than hold tight.
Washington, D.C.:
If you have one mutual fund like Growth, is this diversication?
Gregg Brewer: Yes and no. It offers diversification in the sense that your fund will likely own more than one stock, but you are still highly concentrated when it comes to the style of the fund. I would suggest that you create a financial plan (using an asset allocation framework) and then find funds that fit into that plan. Your plan could be as simple as 60% stocks and 40% bonds or as complicated as 10% large-cap growth, 9% large-cap value, 15% small cap growth, etc. (those numbers were off the top of my head and don't really mean anything). So, to answer your question a little bit better, you should buy some more funds across different investment styles and across some different asset classes (i.e., bonds). If you do that, you will be truly diversified.
Alexandria, Va.:
I am a federal government employee and have most of my retirement money in the Thrift Savings Plan C (stock) fund. I also have money in a large cap mutual fund. I want to open another mutual fund in something else, since I think both of these are essentially large cap funds, but I don't know what to lean toward that would be a good balance with these two. Can you give me an idea what other area would be a start toward a balanced portfolio? Thanks.
Gregg Brewer: This may sound crazy, but maybe your should try a balanced fund or a bond fund. If your only exposure is to large-cap growth stocks, you can add any number of asset classes to your portfolio. The important thing is to balance out the risk. Since you have a large-cap growth fund, you might want to look for a fund with small-cap exposure. My suggestion, however, would be an intermediate-term bond fund to get something other than stocks in your portfolio.
Gregg Brewer: As always, I enjoyed your questions very much. I hope my answers helped. Thank you for having me and I'll see you soon.
washingtonpost.com:
Join us tomorrow as we continue our Mutual Fund Series.
At 1 p.m. EDT, Post business columnist Michelle Singletary and her guest, John Bogle, of The Vanguard Group, Inc., talk about the growth of mutual funds, whether fees are too high and what investors might look out for in this bear market.
At 2 p.m. EDT, Keith Fevurly, financial planning education director at Kaplan College discusses how to determine which investment is right for you and the steps you need to take to plan your financial future.
washingtonpost.com:
That was our last question today. Thanks to Gregg Brewer, and to
everyone who joined us.
Travel
Talk at 2 p.m. EDT
Joel
Achenbach at 2 p.m. EDT
Carolyn
Hax at 3 p.m. EDT
Asctrologer
Charlene Lichtenstein at 7 p.m. EDT
Keep up with the latest in news, sports, politics and entertainment with
washingtonpost.com
e-mail newsletters.
washingtonpost.com:
That was our last question today. Thanks to Gregg Brewer, and to
everyone who joined us.
Travel
Talk at 2 p.m. EDT
Joel
Achenbach at 2 p.m. EDT
Carolyn
Hax at 3 p.m. EDT
Asctrologer
Charlene Lichtenstein at 7 p.m. EDT
Keep up with the latest in news, sports, politics and entertainment with
washingtonpost.com
e-mail newsletters.
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