Cross Training Your Portfolio

Topic: Crossing Training Your Protfolio with Conservative Allocation Mutual Funds
Key Words: Conservative Allocation, CDs, Nest Egg
Word Count: 694
Tomorrow's Topic: I may never go to the church again

Softball tonight; won both games! AND, I struck out two people in the same inning!! 6-0 on the season, and the beer hasn't stood a chance either. With no running, I'll focus on Oprah's riches, and tell you about a nifty set of stock funds; conservative allocations.

So the first rule in saving is what? Answer: put enough money into your companies retirement plan to get their full match. If they match you dollar for dollar to 6% and you put in less than six, simply put, you're throwing away money. The second rule of saving is one not many people do, and some experts will not even mention; you need to have at least six months worth of expenses in liquid savings. With the ability to live for six months without working you can do several things:

1. Use your six months of expenses to make bail if you screw up big time
2. Tell your boss to stick at the drop of a hat
3. Be able to pay your car loan if you boss tells YOU to stick it at the drop of a hat

But once you get that six months, what do you do? The proper, long term advice, is to drive as much money as possible into your companies pre-tax savings, then max out a ROTH IRA, and then go to Aruba! But some people can't stand to put all that money into pre-tax savings since they know they can't get to it for many moons to come. Though that's generally a bad way to feel (you'll need heat in the old folks home after all!), if you know you'll need the money within a couple of years (house purchase?), of if you would like to push for 12 months of savings instead of 6 (so you can tell the boss, emphatically, to stick it), then you can look to save, outside of pre-tax, more of your money.

But instead of keeping this "beyond six month money" in a money market account or CDs, you should consider a conservatice allocation mutual fund. From the name conservative allocation, you probably shouldn't be shocked to learn this definition:

Conservative Allocations look to long term growth of income and a high and
sustainable level of current income, along with moderate capital appreciation.

In short, these funds look to earn you some money now and make you some long term, albeit modest gains to boot. One of my favorites in this category goes by the symbol VWINX; go to ETrade and enter the symbol VWINX.

If you dig into the numbers, you'll see that over the past ten years, it's lowest, and only negative year was 1999 (-4.14%), its had two other years at under six percent, with six of the ten years being over nine percent.

So why does this matter. If you're looking to keep this extra money just to have it, for the reeeealy rainy day, you shouldn't need it right away; you should take more risk. The conservative allocation funds give you a chance to easily beat CD returns, though not quite match stock returns, but do so at a much lower risk than said stocks. Also, for you pundits out there, these funds are believed to be a good way to weather a bear market, and there are those that think we are heading for just such an occurance.

Best of all, most of the gains come from appreciation, and if you hold the fund for more than two years, you only pay capital gains tax of 15%. Interest off of CDs is going to be taxed at your highest tax rate, probably closer to 28%; you've got to pay your Uncle Sam, but no need to pay him too much.

I don't just preach it, I live it, as I'm about to be a proud owner of some VWINX. I want more than CDs offer, but I'm too afraid the market is setup for a tumble to increase my exposure to pure stock funds.

Let me know if you'd like to discuss. Take care.