All Portfolios Should Have a Core Funds Segment
All well-planned portfolios will have at its core a portfolio of Core Funds. Core funds are characterized as being broad-based, diverse, relatively low risk and require little of your on-going attention after you have placed them in your portfolio. These will be your “buy and hold” investments. The Core Funds Segment will not produce eye-popping returns, but as a graduate of this course you will not settle for market averages either.
Spend significant time w Choose Your Core Funds Carefully
irking through this course. The investments you include in your Core Funds Portfolio will be investments that you will plan to hold for years and through numerous business cycles. This fact demands that you put in the work up-front to ensure that you buy only the best funds that the market has to offer. This course shows you how.
Wit Core Funds - One Part of a Total Portfolio
h this relatively low-risk segment as the foundation of your total portfolio you are then free to consider Portfolio Segments that have the potential for much higher returns. Your Core Funds Segment is one component of a complete investing portfolio. Lesson 16 of this course (see Table of Contents at right) walks you through a total portfolio design process that enables you to consider additional segments such a Focused Funds, Individual Stocks and Options.
Course 2 Building Your Core Mutual Funds Portfolio
All well designed portfolios will have a “core” of broadly diversified mutual funds. These are your “buy and hold” investments. They will be relatively low risk and require little of your attention. But you do not need to settle for market average returns. As a graduate of this course you will be able to put together a portfolio of Core Funds that has the potential to significantly out-perform market averages without exceeding your risk tolerance limits. With your Core Funds Portfolio Segment in place, you can then consider adding other Portfolio Segments, as discussed in Courses 3, 4 and 5 of the Confident Investing Series. These Segments have the potential to boost your overall portfolio returns to a level that allows you to reach the goals of your dreams. But first you need to put in place a solid Core Funds Segment. This course shows you how.
Course Forward
Welcome to the second of five courses in the NAOI Confident Investing Series. This course will teach you how to develop your Core Funds Portfolio Segment, one of four segments that the NAOI has defined as portfolio building blocks. The other segments are: Focused Funds (Course 3), Individual Stocks (Courses 4 and 6) and Stock Options (Course 5).
Dollar Cost Averaging
Dollar Cost Averaging - A Strategy for Uncertain Markets
Although it's a fact that the financial markets will experience ups and downs in the short term, it's also a fact that stocks and bonds have offered investors excellent growth over the long term. Here is a strategy that you can use to help you cope with price fluctuations in your portfolio.
Practice Dollar Cost Averaging with Monthly Investments
Investing a set amount on a monthly basis is known as "dollar cost averaging." This strategy ensures that you're buying more shares when the prices are down and fewer shares when the prices are up. Lowering your average cost per share below the average share price allows you to pay a good price for your mutual fund shares without trying to "time" your investments.
For dollar cost averaging to be successful, you must have the ability to invest regularly in both up and down markets. Although this strategy doesn't guarantee a profit or protect against loss in a declining market, it does reduce your overall risk by helping you rely on time rather than timing in your investments.
Monitoring Your Mutual Fund Investment
As a client of PIC, you receive monthly and quarterly statements updating the information on your mutual fund investments. In addition, you may monitor your mutual fund investments daily in the financial section of most daily newspapers.
Our Mutual Fund Analysis Team
With thousands of mutual funds available today, finding the right fund to match your unique goals, time horizon and risk tolerance can be a daunting task. Our goal is to recommend mutual funds that fit your investment objectives and risk tolerance and help you understand how well your current mutual funds are performing in today's market.
A Stifel Nicolaus Financial Advisor can recommend one or more mutual funds from the thousands available to Stifel Nicolaus clients. In addition, he or she can consult with our Mutual Funds Team at our headquarters for further assistance in finding the most appropriate mutual funds for your situation.
Topic - How to Build a Mutual Funds Portfolio
Stick with stock funds. As long as you have five or more years until you need the money, stock funds will likely provide you with superior returns over any other investment. But you have to be patient. In the short term, the market is very volatile, so don't fret when the market drops 10 percent in a week, or your account seems to be worth a lot less than it was last month. Over five, ten, or 20 years, you'll come out much further ahead by sticking with stock funds.
Think big. When you invest in the big American companies, companies like Microsoft, Intel, AT&T, and General Electric, you don't have to worry much about whether they will be going out of business any time soon. What's more, these industry leaders have generated outsized returns for their shareholders over the past decades. Bigger isn't always better, of course, but "large-cap" stocks like these provide plenty of solid returns (over the long-term, of course). Invest in these stocks by buying a l argee cap stock fund.
Think international. The world is a big place and getting smaller as we build telephone lines and Internet connections and satellites that send signals all around the world. Still, somehow, the stock markets in other countries always tend to go down when the U.S. market is up, and vice versa. You can take advantage of this trend by including some global stocks in your portfolio along with big American stocks. You can do this by buying a fund specializing in large international stocks.
Think small, too. Every big company once started out as a small company. If you can buy good companies when they're small, you'll benefit as they get to be big and successful companies. Trouble is, lots of small companies just get smaller and eventually go out of business. So small company stocks tend to be a little riskier than big stocks. But here's the good part -- another funny thing about small stocks is that they tend to do well when big stocks are doing lousy, and vice versa. So if you own big and little companies in you portfolio, over the long-term, things will more than balance out in your favor. Do this by buying a small cap stock fund.
Put it all together. Large cap stock fund. Small cap stock fund. Large cap international fund. Divide your portfolio into three and put a third in each. Now you've got a diversified portfolio in which at least one sector will be doing okay (or better than okay) nearly all of the time.
Consider index funds. The Standard & Poor's 500 is one of the best known stock market indexes, made up of 500 big American companies from all industries. An S&P 500 index fund simply invests in the 500 stocks in that fund -- the fund's advisors don't try to pick stocks that will beat the market. Index funds always match the performance of the market (or of the sector that the index tracks), so you don't ever have to worry about your index fund dogging the market. As a bonus, these funds have low expenses (the fees that the fund's managers take off the top) and that increases your returns.
Avoid overlap. Sometimes people think that if one large cap fund is good, two or three are better. When you buy several funds of one type, more likely than not you'll just end up owning roughly the same set of stocks. Not only will you probably not increase your overall returns, you'll create more work for yourself by having to track additional funds. Choose one good fund of each type in your portfolio and, as long as they continue to perform well, stick with them.
Consider asset allocation funds. Don't want to be bothered with choosing one fund of each type? Asset allocation funds are "funds of funds," or mutual funds that themselves own several funds of different types. Bear in mind that you'll pay for t his convenience, however. These funds generally carry higher expenses and, more often than not, loads.
Avoid bond funds. If you have five years until you will withdraw your investment (like for retirement), then bonds might be appropriate for perhaps 10 to 20 percent of your portfolio, and increasing to perhaps 40 percent (at most) when you are a t retirement age. The problem that most people have is that they think bonds are "safe" -- but bond returns are still volatile, and will give you a lower rate of return than stocks over time.
