My wife and I are military officers who will retire from the military in the next three to four years with an annuity of about $60,000 per year. We have invested throughout our careers. We have attempted to have a wide-ranging portfolio, but perhaps we have missed the forest for all the trees. As you can see from the portfolio, we are very heavily invested in technology. We are both going to retire in our early 40s and do plan to work, but we hope you could provide us with the insight to know just how hard. Our view was to invest in growth, as we consider ourselves 20 years from retirement. Additionally we have one 10 year-old child with an account invested in (FBGRX) - Get Report Fidelity Blue Chip Growth fund. -- D.K.
Diversification is a worthwhile goal in a portfolio because it reduces the volatility in the portfolio's valuation. A lot of investors get confused because they equate diversification with holding a large number of stocks. Holding many stocks in the same industry isn't going to protect you from anything if the prospects for that industry take a turn for the worse.
What I notice in your portfolio is that you're doubling up your bets by buying the same big-name stocks that your mutual funds have large positions in. Take
as an example. Cisco represents almost 5% of your portfolio. Half of the weighting comes from your outright ownership of 80 shares, the other half comes from the positions held by nine of your mutual funds. A lot of your other individual stocks are also widely held by your mutual funds. For example, you own outright three of
Janus Growth & Income fund's top five holdings. You're reducing the diversification of your portfolio by taking this approach to investing.
Since you can't tell fund managers what to buy, look to move your stock holdings into stocks you think have potential but that aren't widely held by your mutual funds. As always, you want to be tax efficient in your taxable accounts. Keep core holdings and tax-efficient mutual funds in your taxable accounts. That way your money continues to work for you -- and not Uncle Sam -- until you need it.
Your Janus fund investments represent about a third of your portfolio. And while Janus funds have provided fabulous returns over the past few years, it's not unreasonable to ask whether that can continue. Read
recent story on Janus for a recap on the changes that have taken place and a review of the funds' performances.
Breaking down your portfolio by investment style, you've met your objective of investing in growth stocks. But the growth of your portfolio is expected to be more volatile than the overall stock market (using the
S&P 500 index as a proxy for the market).
Don't be like Icarus and fly too close to the sun. You could increase your weighting in consumer staples, energy and industrial cyclicals to cut back on the volatility of growth in your portfolio. You can use
StockSelector to find stocks in these sectors.
I also think you own too many mutual funds that are too close in focus to help with diversification. Again, it comes down to the funds owning much of the same thing. Your mutual funds don't have unreasonable expense ratios, but moving some money to tax-efficient, low-expense-ratio, indexed funds like the
Vanguard 500 Index, allows more of the portfolio returns to remain with the portfolio.
You'll get enough diversification by owning an international fund, a large-cap index fund, a sector fund, etc., so you don't need to own multiple mutual funds with the same style. You've already diversified across mutual fund families; there's no need to take that to extremes.
I didn't consider your daughter's account as part of your portfolio, although having more than $30,000 saved toward her college education by the time she is 10 is an accomplishment. Read about
Qualified College Savings Plans
Portfolio Rx to see how you can grow that account on a tax-deferred basis.
Send In Your Portfolio
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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