Tips On Diversifying Your Investments
- Alan Lavine and Gail Liberman
Many of you might diversify your investments by putting money in U.S. and foreign stocks, bonds, cash, real estate and precious metals.
You might also split up your investments so that you own large company, mid-size companies and small company stock funds.
However, recent research shows that is not enough. In your quest to diversify, you can't just buy one foreign stock fund. A new study by MFS, Boston, indicates that if you properly diversify your foreign stock funds, the investment mix will earn the about the same as an index of international stocks. But you should lose about 30 percent less on the downside.
Here are the types of foreign stock funds they recommend:Large company growth stocks. These are blue-chip foreign companies with fast growing earnings. You should have about 25 percent of your overseas investments in this stock category.Large company value stocks. These blue-chip foreign companies are under priced in relation to future earnings. You should have about 25 percent in this stock category.Mid-size company stocks. These have fast growing earnings or are undervalued. You should have about 5 percent in mid-sized company growth stocks and 5 percent in mid-sized company value stocks.
Small company stocks that have fast growing earnings or are undervalued. You should have about 10 percent in a combination of small company growth stocks and small company value stocks. An index or actively managed stock fund that tracks the Morgan Stanley Capital International Europe Australasia, Far East (MSCI EAFE) index of stocks. Keeping 30 percent in this type of fund provides an anchor.
After 22 years of writing this column--the nation's longest-running mutual fund column--I'd like to say goodbye to my readers. I hope that I have helped with your investments over the years. I'd also like to thank the newspaper for a great relationship that has led to 15 books--including a couple of bestsellers.I wish the Boston Herald the best with its newly designed business pages. You may continue reading my columns at www.brill.com, and www.allaboutfunds.com.
Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).
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