Dr. Don, I'm 56, in good health, work as a tenured professor at a community college and don't plan on retiring for another 20 years, at which time I will have a nice pension. I'm divorced with three adopted kids, the youngest of which is 17 years old. She is not interested in going to college, so I really have no obligations to anyone but myself. I own my home and also have rental property. My real estate equity is currently worth about $400,000. All of my investments are held in either 403(b)7 or Roth IRA accounts. I am now only contributing only to my Roth IRA because I don't need the tax deferral. I'll contribute to a Roth IRA this year if my tax adviser says OK. Still, I want to see my money grow. I have lost a lot in recent months but I am not nervous because I know the market will rebound in large growth and tech stocks. Still, I know I should be more diversified, but no bond funds please. I'm wondering what I should do with the 2001 Roth IRA contribution. Should I add it to my previous Roth investments in Managers Special Equity or Janus Enterprise or should I put it someplace completely different? I made last year's Roth contribution to Janus Enterprise and I'm very tempted to invest in it again while it's so far down from where it was. I'd also like to fold the Fidelity Select Computers into one of the other Fidelity funds. I own the Vanguard Growth & Income fund under the assumption that it is a value fund. Am I correct or incorrect in that assumption? Thanks for you thoughts, L.H.
It's refreshing to hear from someone who wants to work in her profession for as long as she can. Most people who write in are looking for their investments to earn a high enough return that they can retire early. I was starting to think that everyone hated their jobs.
You've got 20 years until you plan to retire, but you've put the brakes on your retirement savings and are now only contributing $2,000 annually to a Roth IRA. That would normally be a concern but given how far away from retirement you are, the portfolio along with the annual Roth IRA contributions should grow enough to meet your rather modest needs in retirement.
As you've learned from experience, variable annuities aren't particularly useful investment vehicles in a tax-deferred retirement plan. As you've told me in our correspondence, you're waiting out the surrender charges in the Nationwide plan, which decline to zero after seven years.
You should spend a little time compiling your annual expense ratios for the annuity sub-accounts combined with the mortality and expense ratio, or M&E, for the funds to see if waiting out the surrender charges is actually in your best interest. If you're paying 1.75% to 2.75% in insurance and management fees on the variable annuity investments, and you would replace them with mutual funds that have annual expense ratios of 0.75% to 1.50%, the annual percentage savings could make it viable to switch sooner.
Vanguard Growth & Income fund as a large-cap value fund, but its top-three sectors are technology, financial and health -- just like most of your growth fund investments. Diversifying by buying value funds along with growth funds will increase the number of securities you hold, but may not do much about reducing volatility as long as you continue to invest in the same sectors.
funds all got new managers in 2000. In the
Fidelity Select Developing Communications fund, Rajiv Kaul became the eighth manager appointed within a 10-year period. Management changes foster uncertainty about the future directions of these funds, but by itself aren't reason to sell the funds. I'm hoping that Fidelity waived the 3% front-end loads in your 403(b)7 plan for these funds, but even if they didn't, they are sunk costs and don't figure into the decision about what to do with these funds. I don't know why you've singled out the Fidelity Select Computers investment for reallocating to other funds, but I think you should consider reallocating more of the funds away from these sector funds.
Your two largest investments are the Vanguard Growth Index Fund and the Vanguard Health Care fund. Together they account for almost 40% of your portfolio. Consequently, you're overweighted in health care and, to a lesser extent, technology. On the whole you're too heavily invested in specialty funds, so the portfolio doesn't have a strong enough infrastructure. As a long-term investor you expect economic growth to benefit your portfolio. You've got a large stake in foreign stocks, health care and technology, but if those sectors don't perform, you won't achieve the growth you seek. A more diversified portfolio will have less volatility and is more likely to benefit from broad based economic growth. For example, the Vanguard 500 Index gives you a broader base than the Growth Index fund to earn your investment returns.
In your tax-deferred accounts you are indifferent to growth vs. income because qualified distributions will be taxed at your ordinary income rate regardless of whether they are capital gains, interest or dividend income. In your Roth IRA accounts, you're indifferent between growth vs. income because qualified distributions will be tax-free. So your investment goal can be total return instead of growth. Despite your admonition not to include them, this is where I would suggest a bond fund or two to round out the portfolio.
Investing your 2001 Roth IRA in the Janus Enterprise fund will approximately triple the number of shares you own in the fund but you'll still have to experience a 47% return to get to even by the end of the year. With Vanguard's recently reopened Capital Opportunity fund you have a large position in a mid-cap value fund, so I don't see the need to add to Janus Enterprise because it represents good value. Between the Janus Enterprise fund and the Managers Special Equity fund, I'd give the nod to the Managers Special Equity fund instead.
Dr. Don Taylor has been an investment professional for nearly 15 years, most recently as the treasurer for a nonprofit organization where he managed more than $300 million in assets. He is a chartered financial analyst, holds a Ph.D. in finance and has taught investment and personal finance courses at the University of Wisconsin and at Florida Atlantic University. Dr. Don's Portfolio Rx aims to provide general investing information. Under no circumstances does the information in this column represent a recommendation to buy or sell. Dr. Don welcomes your inquiries and feedback at
firstname.lastname@example.org . Dr. Don owns shares of the Vanguard Growth Index Fund.