The Hancock-Henderson Quill, Inc.
An Amateur's View of Diversified Investing
A very important rule of investing is:
Don't put all of your eggs in one basket. (Diversify) In the last couple of years, whether you owned conservative blue chips stocks or speculative technological stocks, you very likely took a beating.
If it was all in technology, it was more like a massacre.
Some people like to invest in individual stocks.
As many have said, don't invest too much in anything even if it is the company you work for (ex. ENRON).
Many of us prefer to invest in mutual funds so we have considerable more diversification, along with some professional management.
Whether you like blue chips like IBM, GE or GM or technology stocks like CISCO, INTEL or MICROSOFT, why not own a piece of each in one mutual fund?
Some say you should own some small cap, mid cap, and large cap growth stocks or funds and some small cap, mid cap and large cap value stocks or funds.
Why not buy one index fund of the New York Stock Exchange and NASDAQ Exchange?
The sales charge would be very low, maybe .2 of one per cent of portfolio value.
Sales charges are another thing that are hard to figure. Why would anyone want a load fund (likely 3-6 per cent sales charge) when no load funds have just as good performances?
Also, when index funds cost considerably less than other funds and have generally performed as well, if not better, why not simplify things.
Of course how you diversify your portfolio depends upon many things including: age, goals, and risks you will take.
In the past couple years, bonds and cash have shown why they should be important parts of a portfolio, as they basically had positive returns to help balance primarily negative returns of stocks. Real Estate was another positive investment.
Most people agree that you should first have a cash reserve (money market, C.D.'s, etc.) for emergencies.
You should have a variety of bonds if you are at retirement age.
If you are in the affluent class, tax-free municipal bonds are helpful.
This is one amateur's view of a well diversified portfolio for an early retiree who needs both growth and income:
1. Federal Mortgage Funds 10 per cent
2. Intermediate Corporate Bond Fund 10 per cent
3. Convertibles (not topless cars, but instruments which can be converted from bonds to stocks, or vice versa, depending upon circumstances) 10 per cent
4. Utilities 10 per cent
5. REITs (not a new type of candy bar, but Real Estate Investment Trusts.)
You can be like Donald Trump and own a piece of some of the best hotels, housing projects, etc. in the U.S.! 10 per cent.
6.High Yield (Junk) Bonds 5 per cent
7.Diversified International Stock Fund 10 per cent
8.Emerging Markets Fund 5 per cent
9.Science and Technology 5 per cent
10. Health Care 5 per cent (9 and 10 For future discoveries)
11. Index Funds - NYSE 10. per cent and - NASDAQ 10 per cent
Weyman George
Macomb, IL
833-3515