Fund Porfolios Revamped

2/16/2015


Our two recommended fund portfolios are hard to beat. Since the start of 2005, investors who bought the funds in the Growth Portfolio and followed our suggested changes would have earned an annualized return of 7.6%, versus 7.1% for its benchmark and 7.6% for the Vanguard S&P 500 Index. The Conservative Portfolio has an annualized return of 7.5%, compared to 6.7% for its benchmark. Both portfolios outperformed their benchmarks over the last five and 10 years.

FUND PORTFOLIOS OFFER SOLID GROWTH
---------------------------------- Total Returns ----------------------------------
Annualized Since Start Of
2011
(%)
2012
(%)
2013
(%)
2014
(%)
YTD
(%)
2005
(%)
2010
(%0
2012
(%)
Growth Portfolio
(3.0)
15.3
29.4
6.6
1.1
7.6
12.7
16.5
Benchmark
(2.1)
16.2
28.1
7.1
1.4
7.1
12.2
16.7
Conservative Portfolio
(0.8)
14.1
25.9
6.5
1.1
7.5
12.0
15.0
Benchmark
(0.2)
13.3
19.7
5.9
1.6
6.7
9.9
12.9
S&P 500 Index
2.1
16.0
32.4
13.7
0.7
7.6
15.2
19.8
MSCI EAFE Index
(Int’l Stks.)
(12.1)
17.3
22.8
(4.9)
2.0
4.6
5.6
11.3
Barclays Aggregate
Bond
7.8
4.2
(2.1)
6.0
0.9
4.7
4.5
2.9

Our benchmarks use: Schwab International ($19; SWISX) (20% of the growth benchmark, 18% of the conservative benchmark), Vanguard Total Bond Market ($11; VBMFX) (10%, 22%), and Vanguard Total Stock Market ($52; VTSMX) (70%, 60%).

While our game plan is working nicely, weights for several funds are being adjusted to reflect a more conservative approach, partly because of the market’s choppy price action. A summary of changes:

• Stocks now account for 80% of the retooled Growth Portfolio, down from 87%. The Conservative Portfolio is 71% invested in stocks, down from 77%.

• Midcap and small-cap stocks are being trimmed, while large-cap stocks are increasing slightly to about 63% of the Growth Portfolio and 66% of the Conservative Portfolio.

• In the Growth Portfolio, we are adding Baird Core Plus Bond ($12; BCOSX), a top intermediate-term bond fund, with a 4% weighting. Thompson Bond ($11; THOPX), which invests in short-term bonds, is also being added with a 4% weighting.

• Both portfolios have less exposure to foreign stocks, reflecting a reduced weighting in iShares MSCI EAFE Small-Cap ETF ($48; SCZ).

To mimic our recommended portfolios, purchase the funds listed below in the proportion suggested by the target weights. If you just want a few timely picks, consider Baird Core Plus Bond, Vanguard Dividend Growth ($23; VDIGX) for stocks, and Vanguard Wellington ($39; VWELX) for a stock-bond blend.

OUR RECOMMENDED MUTUAL FUNDS
Year-To-Date *
--- % Of Portfolio ---
 
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Fund
Rating †
Artisan International ($31; ARTIX)
2.1
C
9
9
98
Baird Core Plus Bond ($12; BCOSX)
1.1
A
9
4
95
Dreyfus Midcap Index ($38; PESPX)
2.0
A
0
0
59
Dreyfus Small Cap Stock Index
($29; DISSX)
(0.1)
C
0
0
91
Homestead Small Company
($39; HSCSX)
(1.3)
E
5
6
98
iShares MSCI EAFE Small-Cap ETF
($48; SCZ)
3.0
B
4
6
89
T. Rowe Price Divers. Small-Cap Growth
($26; PRDSX)
3.0
A
7
7
96
T. Rowe Price Value
($35; TRVLX)
0.0
D
10
11
90
Thompson Bond ($11; THOPX)
0.6
A
9
4
69
Vanguard 500 Index ($191; VFINX)
0.7
C
7
8
85
Vanguard Dividend Growth
($23; VDIGX)
0.6
C
10
10
79
Vanguard GNMA ($11; VFIIX)
0.4
D
0
0
98
Vanguard Growth Index
($55; VIGRX)
1.7
B
10
11
91
Vanguard High-Yield Corp. ($6; VWEHX)
1.6
B
5
6
98
Vanguard Inter.-Term Tax-Exempt
($14; VWITX)
0.5
D
0
0
89
Vanguard Selected Value
($29; VASVX)
1.5
B
5
8
68
Vanguard Short-Term Invest.-Grade
($11; VFSTX)
0.4
B
0
0
97
Vanguard Total Bond Mkt. Index
($11; VBMFX)
0.9
C
0
0
53
Vanguard Wellesley Income
($26; VWINX)
0.7
D
0
0
99
Vanguard Wellington ($39; VWELX)
0.6
E
10
10
99

* Year-to-date ranks through Feb. 10 from Morningstar, comparing performance among funds with same objectives. A = top 20%; B = next 20%; C= middle 20%; D = next 20%;
E = bottom 20%. † Fund ratings are percentile ranks based on our fund-rating system.


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