Young Reader Already on Solid Financial Footing

At a point when many young investors are struggling to muster the rent payment, Doug Harmon has compiled an investment portfolio worth nearly $40,000.

The 22-year-old recent college graduate has been saving his money since age 16 and has been investing in stocks since his first year at Loyola College in Baltimore.

His investing philosophy would earn a standing ovation at a financial planners' convention, though not necessarily within his own circle of friends. "I think it is very important that individuals invest as soon as possible," he says. "However, most of my friends are not interested in investing at this time, no matter what I try to tell them."

Now beginning his career as a software engineer for Bell Atlantic (BEL) in the Washington, D.C., area, Doug is in good shape financially.

He must pay back a $20,000, 8% college loan, but is otherwise free from debt. He paid off his car loan last year and now owns his 1994 Acura Integra RS free and clear.

His question for the TSC Portfolio Planner is where to go from here: pay off the loan or continue to invest? Doug would like to put 5% of his pretax salary in his firm's 401(k) plan and another $2,000 annually in his Roth IRA.

He also would like the planner to look over his five-stock, two-fund portfolio that is dominated by two stocks, AT&T (T) and Lucent (LU), which he originally received as gifts from his grandfather.

Doug Harmon's Portfolio
Stock/fund	Value*	Year-to-date return*
AT&T (T)	$8,474	9.9%
Lucent (LU)	9,475	42.7
Excite@Home (ATHM)	4,563	22.9
H&R Block (HRB)	1,992	28.1
Black & Decker (BDK)	3,143	11.6
Fidelity Low-Priced Stock(FLPSX) (in Roth IRA)	5,429	9.3**
Putnam Voyager(PVOYX)	2,820	17.7**
Cash	3,727	n.a.
Total	39,623
*Through July 16. **Through July 15. Source: Baseline, Lipper.

We called in Roxanne Fleszar of Financial Resources Management in Peabody, Mass., to look over his portfolio.

"I think he's in great shape, and I wish most 22-year-olds in his position thought the way he did," she says.

She endorses Doug's decision to continue investing rather than pay down his college loan faster than his scheduled payment plan. An 8% loan "isn't too onerous," she says, and besides, "he really understands investing, and he should be able to make more money over the long term."

As for his portfolio, the key is to reduce his concentration in AT&T and Lucent stocks, which make up nearly half the portfolio's assets, she says. Ideally, his entire portfolio should be invested 65% in large-cap stocks or funds, 20% in small- to mid-cap issues and 15% international. The current mix is about two-thirds large-cap and one-third small-cap with no international exposure.

Doug has two ways of achieving that diversification, through stocks or through funds. If he decides to keep his stocks, he should expand the number to at least 10 or 15, she says.

He "has done a pretty good job of picking the ones he's got," says Fleszar, noting that his five holdings are a mixture of growth and value, tech and nontech. "I'm glad he's not all in the high-tech sector," she says.

She'll leave it to Doug to choose additional stocks, but throws out the names of some beaten-down tech and value stocks as some examples of what to look for: America Online (AOL), Charles Schwab (SCH), Bank One (ONE) and Home Depot (HD).

Doug can achieve additional diversification through his 401(k) investments. After looking over a list of funds available in his plan, Fleszar recommends that Doug put 70% of his 401(k) funds in an index fund that matches the Wilshire 5000 portfolio and another 30% in the (FDIVX)Fidelity Diversified International fund.

One last piece of advice concerns the roughly 9% of his portfolio that's in cash. Fleszar recommends keeping four to six months' worth of living expenses in cash, just in case. That may call for Doug to put part of his future savings into a money-market account.

And since Doug is entertaining thoughts of buying a house in five years or so, he might want to lighten up on his stock holdings in two to three years and put a little extra into the money-market account, she says.

---

Would you like a TSC Portfolio Planner to evaluate your mutual fund portfolio? Send a note to [e-mail].

We'll need to know what funds you own and roughly what percentage of your portfolio they constitute. We also need to know a little bit about your investing goals.

Periodically, we'll select a reader portfolio that we feel is the most interesting or instructive. One of our Portfolio Planners will then offer suggestions for fine-tuning or, if necessary, overhauling it.

Remember, this exercise will be conducted in public, in front of all of our readers. So if you're squeamish about making your financial life public, this probably isn't for you.

>To order reprints of this article, click here: Reprints