A reader asks: If I have five thousand dollars to invest, how should I do it? There are so many mutual funds. How do you choose among them?
Thanks for this very good question, Linda. If you are investing for the long run, you will want to begin with a conservative growth-and-income approach. Remember the wisdom of diversification. Irving Berlin wrote a great song, "I'm Putting All My Eggs In One Basket," which is a sweet strategy in love, where risk varies directly with romance, but is a foolish policy in the stock market. That is why a combination of mutual funds (which own a basket of stocks and bonds) rather than individual stock picks generally makes the most sense for your Roth-IRA or other long-term investment dollar.
Say you have $5,000 -- a modest advance from a small press for your proposed study of opening and closing lines in epic poems from Homer to Byron. (Wonderful idea, by the way.) You might divide your investment between a diversified equity-income fund and a slightly more aggressive but also diversified mid-cap growth fund. OK, but which ones?
A good way to choose is on the basis of the fund manager: his or her track record and longevity. It's a very good sign when a fund has outperformed its peer group for periods of one year, three years, and ten years -- and when the same manager has been at the helm the whole while.
Brian Rogers has run T. Rowe Price's Equity Income Fund for more than fifteen years and has a sterling record in both bull and bear markets. The same is true for two excellent Fidelity funds, Fidelity Contrafund (run by Will Danoff) and Low-Priced Stock Fund (run by Joel Tillinghast): either would make a worthy choice for the growth half of your portfolio.
Caveat: nothing said here is intended as a specific buy-sell recommendation; examples are given for instructional purposes only.
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