is created for a middle-aged husband and wife whose kids are grown and in college. They have been saving for retirement but aren't satisfied with their anticipated level of income. They want to use the 10 remaining years of their working lives to boost their retirement income without taking on undue risk.
Hayden put together what he calls a moderately aggressive portfolio that allots only about 10% to bonds. This couple's 10-year investing horizon gives the portfolio plenty of time to recover from a short-term bear market, should one occur, he says. And overall, the portfolio is about as volatile as the broader market, which is fine "as long as the people can emotionally handle it," he says.
In choosing funds, Hayden says he focuses primarily on the managers and doesn't worry about each stock they invest in. "I'm not so concerned that they stay within a certain box, such as value or growth. I'm more concerned that the managers have a buy discipline and a sell discipline and that they're just really good players," he says.
The portfolio is divided into what Hayden calls offense -- funds that should provide most of the growth; defense -- more conservative funds that will hold up in a down market; and special teams, or sector funds.
Funds for Offense
The biggest allocation -- 30% -- goes to
Legg Mason Value Trust
, managed for 16 years by Bill Miller. "I like the fact that he's an independent thinker and he targets larger companies, generally with a growth orientation," says Hayden. The fund is fairly concentrated, with fewer than 50 stocks, and is focused on three sectors: financials, technology and services. For the year through Nov. 25, the fund has returned 35.3%, well above the 24.0% return for the
Vanguard Index Growth
, the growth-oriented sister of the wildly popular
Vanguard Index 500
, gets 20% of the portfolio. Both Vanguard funds are managed by George Sauter. "I have a bias toward active management versus passive management, and this is a compromise between the two," says Hayden. This year, Vanguard's Growth index is outreturning the S&P 500 index by 11 percentage points.
Leading the defense for Hayden's portfolio is the
fund, managed by Jim Gipson. "It seems that his volatility and risk level is 20% to 30% less than the S&P 500, and yet he's able to match its performance," says Hayden. As of early October, the fund had 36% of its assets in cash, yet its return for the year through Nov. 25 is still a respectable 22.4%.
Hayden allots 10% to
"solely to hedge the portfolio when the stock funds are going down," he says. He calls Harbor Bond manager Bill Gross the "
Hayden is high on the health-care sector, so he is putting 15% of the portfolio into
, managed for 14 years by Ed Owens. "The aging population needs more doctor visits, more hospital care and more drugs and supplements," says Hayden. "I like it because I'm getting older and can appreciate what's going on here." The fund, which has a large stake in pharmaceutical stocks, has returned 33.7% this year, handily beating the S&P 500.
The final 10% goes to
, a hot fund managed by Helen Young Hayes. Several years of outstanding returns caused the fund's assets to balloon to $14 billion as of Oct. 31 -- a concern, says Hayden. But "since she has such a broad spectrum of markets and companies to choose from, I think she's capable of handling it," he says. The fund is up 16.6% for the year, much better than the 10.1% return for the average global fund tracked by
Lipper Analytical Services
. Hayden says he also considered
Scudder Greater Europe
and might turn to that fund if Janus Worldwide falters. He also believes that "at some point Japan is really going to come back." If so, he might add another Scudder fund, the
fund, to the portfolio.