There are 7 basic things you should keep in mind when putting together a portfolio of mutual funds. Pay attention to these 7 key items, and you're on your way to successful investing.
1. Decide upfront whether you want to be conservative, moderate or aggressive. Don't stray far from moderate unless you are retired and adverse to risk, or young and willing to accept considerable risk for the potential of high returns.
2. Mix it up by owning stock, bond and money market funds. A moderate portfolio should be about 60% invested in stock funds, with the rest split between bond and money market funds.
3. About 60% of your stock dollars should go to diversified . (domestic) stock funds, with 25% to 30% going to international funds. For the remainder consider a mix of real estate, gold, and natural resources specialty funds to add balance to your portfolio.
4. When selecting bond funds avoid long-term funds and low quality (junk) funds. These pay higher dividend yields, but carry more risk. Concentrate on intermediate-term high quality funds. Don't invest in tax-exempt funds unless you are in a higher tax bracket.
5. For the sake of safety, flexibility and liquidity, always keep some money in money market mutual funds. To be cautious in a low-interest- rate environment, make your allocation to money market funds about equal to your allocation to bond funds. Invest in tax-exempt money market funds only if you are in a high tax bracket.
6. Now, review your overall mutual fund portfolio. You should be about 60% in stock funds, 20% in bond funds, and 20% in money market funds. This will put you in a moderate position, leaning somewhat to the conservative side.
7. Keep your investing costs low. Avoid sales charges whenever possible. Look for funds with low expense ratios. No-load funds and index funds are the key to saving thousands on sales charges, fees, and expenses.
That's it, plain and simple. When your percentages get out of line as time goes on, rebalance back to 60% stock funds ... 20% bond funds ... 20% money market funds. Within the stock category, keep about 60% in . funds ... 25% in international stock funds ... 15% in specialty funds.
This should keep you in the middle of the road, and on course for long-term growth with only a moderate level of risk.
A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.
Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to
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