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Portfolio > Economy & Markets > Stocks

Five Core Funds for Conservative Investors

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Here’s how several top advisors structure portfolios for conservative clients.

Donald F. Dempsey, Jr., CFP, Dempsey Investment Management, LLC in Williston, Vt.

T. Rowe Price Capital Appreciation (PRWCX) is a fund I use for some clients. Despite its name it is actually a well-balanced fund that owns U.S. stocks, U.S. and foreign bonds, convertibles, preferred, foreign stocks and cash.

Over the last ten years it only had one down year (2008: -27.17 percent) and has averaged 8.63 over 10 years and 9.65 over 15 years putting in the top 1 percent of its category over those time frames.

Also important is its reasonable fee structure of 0.75 percent.

The only downside for smaller clients is the transaction fee at firms like Schwab, TD Ameritrade and Fidelity, so it is not my first choice for small clients or those looking to dollar cost average.

Susan MacMichael John, CFP, Financial Focus, Inc., Wolfeboro, N.H.

My favorite core fund for conservative investors is Vanguard Wellesley Income Fund (VWINX). It offers an extremely conservative mix which consists primarily of dividend paying stocks and investment grade bonds.

Low turnover (about 53 percent), low volatility (five-year standard deviation of less than 7.5), reasonable income (current 12-month yield of about 4 percent) and low expenses (0.31 percent according to their annual report). What more could you ask for?

Perfect for an IRA or for someone seeking income with some prospect for growth: 3 year annualized total return of 3.26 percent; 5 year: 4.94 percent; 10 year 6.84 percent.

Michael D. Gibney, CFP, Highland Financial Advisors, LLC, Riverdale, N.J.

For conservative clients who only have the capability for one fund, we often recommend American Funds Capital Income Builder (CAIFX).

The fund has an excellent allocation of 70 percent stocks and 30 percent bonds (which is actually a little higher than normal–last year it was 60/40). Further, the fund has an appealing allocation to non-U.S. stocks (40 percent of the 70 percent listed above).

The bond allocation has an average duration on the intermediate side, with a current duration of only 3.7 years (average maturity of 5.1 years). This is important in a rising interest rate environment.

Other points:

o The fund, like all American funds, is managed by a team of portfolio counselors, so it is not reliant on one manager. The expenses are excellent. We use the F-1 or F-2 shares, which have an expense ratio of only .66 and .42 respectively.

o Lastly, its track record is impressive. It boasts an average total return of close to 10 percent since its inception (mid-1987).

o Since it relies heavily on income-producing investments, it is important to review the client’s tax situation.

Rick Shapiro, CPA/PFS, CFP, Investment & Financial Counselors LLC, West Hartford, Conn.

Ivy Asset Strategy (WASAX): This fund will reduce, significantly, its equity holdings when it determines that equity-related risk far outweighs potential return.

In the first two months of this year, lead manager Michael Avery has fully hedged the fund’s U.S. stocks using futures contracts, reducing the overall equity exposure to just 18 percent of assets. (At times, the fund could be invested up to 80%, or more, in equities.)

The fund’s average annual geometric returns for the (current) 10-year period are over 7 percent — quite impressive when compared with the stock market.

George S. Middleton, CFA, CPA, Limoges Investment Management PC, Vancouver, Wash.

Oakmark Equity & Income (OAKBX) has a lot of appeal to us. Perhaps foremost is its downside risk protection.

In 2008, it lost 16.18 percent, which placed it in the top 95 percent of its moderate allocation peers.

It is a well-rounded fund holding 63% in stocks and 27 percent in bonds. Additionally, 16 percent of the stocks are international.

The bonds by and large are very conservative.

Clyde McGregor who has managed the fund since its inception in 1995 eats his own cooking as a large shareholder in the fund.

The fund performed well over the last decade while the stock market as a whole was suffering turbulent times.


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