Personal Finance, Money and Investing

Building A Growth & Income Investment Potfolio

Posted on February 13, 2008 in the Investing, Mutual Funds category

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The third in our series of designing a mutual fund portfolio. Previously we have focused on how to put together an aggressive portfolio and a conservative portfolio. Today we focus on how to create a moderate or growth & income portfolio.

Another name for this type of portfolio that combines moderate growth and low-volatility is value. The growth comes from stock mutual funds that offer moderate price appreciation and relatively low-volatility. The income comes from bond mutual funds where long-term returns with less volatility are more important than yield.

The neutral allocation of this portfolio is 45% in stocks, 45% in fixed income and 10% in cash. Depending on the short-term cash needs of the investor or their willingness to take risk, the allocations can be changed. However, I would not recommend having more than 60% allocated to one particular type of investment.

Typical Investor:

Volatility:

Return Potential:

Asset Allocation :

Fixed Income Component
Similar to the conservative portfolio, the fixed income component of this portfolio contains bond funds instead of individual US Treasury bonds. When looking at bond funds I like a mixture of safe and slightly more aggressive bond funds. When used together, you get a slightly higher yield and return than just buying moderate bonds funds.

The conservative bond fund that I like is the MassMutual Premier Short-Duration Bond Y (MSBYX). This bond fund has had a terrific record over the last three years and has not had a down year in the last 8 years.That is the kind of performance that I like from my fund managers!

To compliment this fund I would add Intermediate bond funds to the portfolio. When allocating money between the different types of bond funds I would not put more than 50% into any one group.

The four intermediate bond funds I like are

All four funds are five stars by Morningstar and their performance has beat 94% of their peers over the last 3 years.

Equity or Stock Component
As in the fixed income part of the portfolio, your stock funds should compliment each other to give the investor the moderate growth that they are looking for, with moderate portfolio volatility. Typical stock investments would include both large growth, as well as value. When allocating your money between these fund groups I would not put more than 50% into any one fund.

The first stock fund is an index fund that tracks the S&P 500. The Vanguard S&P Index fund is my choice here. The fund employs a passive management investment approach designed to track the performance of the Standard & Poor’s 500 index, a widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. It invests all, or substantially all, of assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

The Janus Orion(JORNX) is a five star fund that I really like. It primarily invests in equity securities with growth potential. It may invest in companies of any size, from larger, well-established companies to smaller, emerging growth companies. The fund may also invest less than 35% of assets in high-yield bonds. It normally invests in a core group of 20-30 common stocks. The fund is nondiversified. Over the last three years it has ranked #6 out of 811 competing funds.

Another fund I like is the CGM Focus fund (CGMX). This fund typically invests in the securities of between 20 to 100 companies at any one time. It may invest in companies regardless of the size of their market capitalization, but primarily invests in companies with market capitalizations of at least $100 million. The fund may invest in debt and fixed income securities of any maturity and any grade. It is nondiversified. Over the last 1,3 and 5 years this has been the top performing Large Blend mutual fund.


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