Hello and welcome to our "Picking the Right Mutual Funds for Your Portfolio" chat! Kiplinger investment experts Manny Schiffres and Nellie Huang are on hand to answer your questions today.
Hi everyone, Thanks for joining us!
Does anyone have a question they'd like to kick off the even with?
Looks like people are still getting logged in. Maybe we can start out with a little overview of the Kip 25, Nellie?
Sure thing. We at Kiplinger have a list of our favorite no-load funds--25 funds, about seven bond funds, four international funds, two kind of specialty funds and the rest are domestic stock funds
We watch the funds all year and update their performance monthly, but once a year, we really go through the list to see whether any funds should be replaced, or to see if any funds have come onto our radar that are worth putting on the list.
What funds were added this year?
Just wanted to say hi and add that the performance of the K25 this year has been amazing
But once a fund makes it onto the Kip 25, we think long and hard before removing it. Good managers will sometimes have off years--we don't bail on a fund after it stumbles over the short run.
This year, we added two bond funds that can roam the fixed-income universe for opportunities--it was a strategy we thought befitting of the times: rates are going to rise and a flexible bond fund seemed better than say, one that's tracking the broad bond market.
The new funds were Metropolitan West Unconstrained and Osterweis Strategic income
The ticker symbols are MWCRX for the met west fund and OSTIX for the Osterweis fund
They held up well during the swoon in bonds over the summer, which was kicked off by talk from the Fed that they might taper their bond purchases.
Here's a question from Mary:
I can take a stab at this: First, you're young, so you should be fairly risk tolerant--but you should tell me now if you aren't.
Regarding asset allocation, if you're 27, you should have your long-term money in stocks.
Exactly my thoughts Manny--Mary, you should go 100 percent in stocks, unless you want to keep some cash on hand to buy during subsequent dips in the market
One rule of thumb is to subtract your age from 100. The result is the percentage in stocks--in this case 73%. You could easily argue for a higher allocation to stocks, especially with cash paying zero and bonds at risk of rising interest rates
Here's another reader question: Want to invest in something that has a higher yield than a CD but little risk. We have been told bonds would be best, but we’re not sure. Can you help?
The quest for yield with little risk is a tough one in this environment. How about a floating-rate bank loan fund, such as Fidelity's. I think it yields about 3%. Almost no interest rate risk, but there is credit risk--the risk that a borrower could default on its debt payments. I'll get some data in a sec
Thanks for joining, Meg. Your question is on deck!
This is a tricky time for bond investors, with rates poised to rise. A short-term bond fund is another option, too, right Manny?
Sure, Nellie, but I think you'll get more yield with less rate risk in a floating rate fund
FFRHX yields 2.61%. Fund lost 16% in 2008 because everything that didn't have Treasury in its name plunged, rebounded 29% in 2009 and since then has delivered single-digit returns each year
Thanks for the thought, Chris (re: subtracting your age from 100)
Sheesh. Why not go for 150? :)
Again, you're young so you can afford to take some risk and put your retirement money--most of it--in stocks. What are you holding in your 401K? Are you allocating money to domestic and international stocks? Do you hold a mix of large-company and small or midsize company stock funds?
Keep your fees low in the IRA--focus on low-cost, no-load funds or low-cost ETFs (I have to say low-cost ETFs these days, even though it seems redundant, because there are some that charge super low annual expense ratios).
Just FYI on the age asset allocation debate--my 80-year-old mother has 60% of her portfolio in stocks, so that puts the figure at 140.
While we wait to hear back from Meg, here's another reader question: How do you think emerging market bond funds will do this year? What sorts of factors will influence them? (ie, value of dollar, value of euro, inflation)?
Also, I feel like much of that age minus 100 or 110 or 150 equation depends on how much money you have--especially if you're nearing or in retirement.
LOL. A couple of years ago, our ultimate boss, Knight Kiplinger, had to tell his then 93-year-old father to cut back on his stock allocation. I forget the exact amount, but it wa
s way, way up there.
I've talked to a lot of bond strategists lately about emerging-markets bonds. Many are seeing opportunity now, because they've performed poorly over the past year and they got hit hard during that spring/summer bond swoon.
I was kidding about the 150. We're not suggesting that people use leverage, which 150 minus, say, 25 would imply
Many factors will affect performance going forward, including inflation (in the respective countries), the value of the dollar, etc. So the key is to keep diversifiied if you're going to invest in EM bonds. Don't go single country or even single region--and look at local currency as well as dollar-denominated debt (there are ETFs and funds that focus on either; some do both, including our Kip 25 Fidelity New Markets Income)
Meg, what are the funds you're unhappy with?
To Meg: Look at some of the funds in our Kip 25: AkreFocus is a great midsize company fund. Homestead Small Company is worth a look and there are five large-company funds on the list as well: Mairs & Power Growth, Dodge & Cox Stock
You could buy ETFs too--in the IRA, try to find out which ETFs trade commission-free at your online broker. Fidelity has some 66 or 67 ETFs that you can trade for free.