Like many young investors who came of age during this long bull market, Jeff and Michelle Pokorny are optimistic that growth and technology stocks are the ticket to early retirement.
"We're looking desperately to retire in 20 years (or less!) and trying to save most of our pennies to achieve that goal," writes Jeff, 33, an economist for the state of Mississippi. His wife, Michelle, 30, is a U.S. Air Force captain.
The Pokornys have built a $123,000 investment portfolio with a serious savings program that includes regular, monthly contributions into retirement plans, brokerage accounts, cash savings and a handful of stock dividend reinvestment programs.
Pokorny Family Holdings
Morgan Stanley Dean Witter Aggressive Equity fund (IRA)
Templeton Emerging Markets (closed-end fund) (IRA)
Franklin Equity fund (IRA)
Morgan Stanley Dean Witter High-Income II (closed-end fund) (IRA)
New Perspective fund (IRA)
Morgan Stanley Dean Witter S&P 500 Index fund (IRA)
Morgan Stanley Dean Witter Competitive Edge fund (IRA)
Mutual Beacon fund (IRA)
American Home Products
First Energy (DRIP)
Procter & Gamble (DRIP)
General Electric (DRIP)
Unit Investment Trust
Morgan Stanley Dean Witter Select 10
A good start toward a very lofty goal. But is it enough? And have they put too much of their savings into large-cap growth and technology? We put those questions to one of
Portfolio Planners, Lou Stanasolovich of
Legend Financial Advisors
"I think they're doing fine on their overall savings rate," says Stanasolovich, who estimates the Pokornys put away 15% to 20% of their combined annual income of $93,000. "That's a pretty substantial number at their ages."
But Stanasolovich found some cause for alarm in the couple's low level of cash on hand, just $2,300.
"It's not enough," says Stanasolovich, who recommends a minimum of $15,000 to $20,000, or three to six month's worth of expenses. Though the Pokornys have no children and no credit-card debt, they face an $850 monthly home mortgage payment, a $10,000 balance on a loan for their 1997 Chevy Blazer and an $8,000 loan balance on a 1993 Proline offshore fishing boat.
As for the investment portfolio, it is, as the Pokornys feared, too dependent on large-cap growth and technology stocks, says Stanasolovich, "especially if you think the market is turning and favoring other types of securities like mid- and small-cap."
The couple's stock portfolio is almost exclusively large-cap and includes some of the biggest of the bigs:
American Home Products
The Pokorny's portfolio of mostly
Morgan Stanley Dean Witter
funds also is dominated by large-cap growth, such as the
MSDW S&P 500 Index fund and the technology- and telecom-laden
New Perspective fund.
"If this were 1972 or even 1974 or '75, growth stocks didn't go anywhere for 10 years," he says. If growth stocks were to fall out of favor, "they could be in for a very long period of underperformance."
"They might consider moving into more reasonably valued areas," he says.
Stanasolovich recommends diversifying with a pair of no-load funds from Dallas-based
Brazos Mutual Funds
Brazos Growth fund invests in the mid-cap range -- companies with market capitalizations between $2 billion and $5 billion. And
Brazos Micro Cap invests in the smallest 10% of companies on the
index. These companies can have market capitalizations of less than $200 million.
Both funds are young; the Growth fund launched last December and the Micro Cap fund started a year earlier. But
John McStay Investment Counsel
, which runs both funds, "has a very good track record on the institutional side of the business," where it manages more than $4.5 billion, Stanasolovich says.
He also recommends
Artisan International for more exposure to non-U.S. securities beyond the couple's one emerging markets fund. Artisan International has a solid four-year track record and a five-star rating from
A small portion of the portfolio, perhaps 10% to 15%, should go toward a total return bond fund, such as
Loomis Sayles, Stanasolovich says. Though Jeff has the closed-end
MSDW High Income Advantage II
in his portfolio, "junk bond funds tend to act like stocks," warns Stanasolovich, and may not provide the cushion the portfolio would need in a down market.
Rather than sell their existing investments, Stanasolovich recommends the Pokornys put new money toward the quartet of funds he recommends. "Any new cash ought to be devoted to other sectors of the markets," he advises.
Now for the big question: Can the couple collect their gold watches and head for Leisure World in 20 years?
Stanasolovich is not optimistic. "The likelihood is not strong," he says. "Probably at least one of them will live until age 90. That's an awful long time to live off of one's savings."
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The TSC Portfolio Planners series aims to provide general fund and investing information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.