Dear Portfolio Doctor,

I am moving my 401K (approximately $32K) out of my old employer's plan (Seligman Funds) and investing it on my own. Right now this is the only money my husband and I have put away for retirement. I am opening a Fidelity IRA Rollover account and investing 10% in the (JABAX) - Get Report Janus Balanced Fund, 40% in the (FDEGX) - Get Report Fidelity Aggressive Growth, 30% in (FBGRX) - Get Report Fidelity Blue Chip and 20% in the (JAGIX) - Get Report Janus Growth & Income.

I don't plan on retiring for another 25 years or so. I would like to be aggressive and thought I needed approximately 80% in stocks and 20% in bonds. I am not very familiar with investing and have been looking things up on my own. But, is this a good way to go with my money?

Thanks for your help,

PC

Dear PC,

You didn't have to move the money away from your old employer's plan, but I think you're making the right choice. An IRA rollover account gives you more flexibility in how the account is invested than the typical 401(k) pension plan provides. A direct transfer is always preferable to getting a check and then having to deal with the mandatory withholding issue.

If you're 25 years from retirement and you've only got $32,000 put aside for retirement, then it's time to take it up a notch. Assuming a 10% pretax return, your retirement portfolio will be worth about $350,000 in year 2026. The more you can put aside in the next few years, the better, because that money will have more than 20 years to earn returns for you.

A lot of investors have million-dollar targets for their retirement portfolios. They feel that if they can get their retirement portfolio to a million-dollar valuation they'll be OK in retirement. I'd say that's low for what you want in a retirement portfolio from which you'll be taking distributions in 25 years. Whether the number is low or high, it's three times what you can reasonably expect from your current portfolio. A retirement calculator can help you determine what you need to be investing annually. There are dozens of retirement calculators, but I like the one at

Bankrate.com. Any Social Security or pensions that you qualify for will reduce the need for additional contributions to your retirement accounts, and the calculator will include them in the analysis.

I think hybrid funds, which invest in both stocks and bonds in one fund, like the

Janus Balanced Fund

, aren't really needed once you get past critical mass in the size of your mutual fund accounts. What's critical mass for a fund? The point where you're not being charged account administration fees for each of the individual mutual funds. Fidelity, for instance, charges $12 a year if your balance is less than $2,500 in a given mutual fund account, with a maximum fee of $24 across all accounts. If your total Fidelity assets exceed $30,000, then they don't charge a fee.

So if you were just starting out, it wouldn't make sense to spread your investments over a large number of mutual funds and incur these fees. Your portfolio is large enough that you don't have to buy hybrid funds to economize on account fees. You've done a good job of keeping an eye on annual expenses. Don't lose sight of that over time. Keeping your funds' expenses down is a way of keeping your returns up.

You've said that you want to be invested 80% in stocks and 20% in bonds. Given your goal for this money and your time frame until retirement, that's not inappropriate. But your actual allocation, as shown in the table below, which I calculated using

Morningstar's

Portfolio Manager, is only 6% bonds. Also, your hybrid bond fund,

Janus Balanced

, has a penchant for high-yield debt, including convertible bonds, with the credit risk being partially offset by investments in conservative U.S. government bonds. My point is that if you want to allocate 20% of your portfolio to bonds, you can better control that 20% by investing outright in a bond fund or individual bonds that are tailored to your risk preference.

That's important to remember. One of the attributes of a brokerage IRA rollover account is that you can invest in individual stocks and bonds. With the amount of money you're currently investing, it makes more sense to buy mutual funds for both your stock and bond investments, but as your portfolio grows you may consider buying individual stocks and bonds in the account.

There's also a fair amount of stock overlap in your current investments.

Cisco Systems

(CSCO) - Get Report

,

EMC

(EMC)

,

Corning

(GLW) - Get Report

and

Texas Instruments

(TXN) - Get Report

are owned by all four funds. Another seven stocks are owned by three of the four mutual funds. When your funds own the same stocks, you're not getting any diversification benefits by owning different funds. Switching out of the Janus Balanced into a bond fund will help the situation. I'd also rather see one of the holdings invested in a broad-based index fund, probably one of the two Fidelity funds because it would reduce the number of technology stocks held in the portfolio.

Even more important than fine-tuning your mutual fund selection is putting more money to work in your retirement accounts. If you are eligible to fund an IRA or Roth IRA prior to April 16 for the past tax year, and can afford to do so, then open that account as well. If you or your spouse can participate in an employer's 401(k) plan, especially if the employer matches any part of your contribution, invest there, too. You have to balance your current needs against your future needs, but to the extent that you can push the retirement investments to the forefront over the next few years, you'll reap a reward for your thrift.

There's a difference between aggressively investing for the future and taking on unnecessary risks. Don't try to make up for lost time in your portfolio by loading up on risk. Take on risk that you're compensated for by investing in a diversified portfolio.

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

portfoliorx@thestreet.com.