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Show E4 DAI'LY Sunday, September 19, 2004 HERALD THE WALL STREET JOURNAL Getting Going Jonathan Clements By Mixing Investments? Don't Get Mixed Up a winning portfolio, need to mix together the combination of stocks and bonds. But oftentimes, it's investors themselves who get mixed To build blue-chi- p Gun for Growth Younger investors are frequently advised to load up on. stocks of rapidly growing companies, especially technology companies. Good advice? I don't think so. Contrary to popular belief, a group-do- n't growth companies-- as generate superior long-rureturns. In fact, history suggests that the best returns come from buying "value" stocks, many of which appear to have poor growth prospects. Because value stocks are so suspect, they trade at cheap prices compared to current earnings or corporate assets. But with expectations so low, good news can mean .startling gains. Don't get me wrong: I am not arguing that younger investors should overweight value instead of growth. Rather, I think if is foolish to go overboard on any sector. Paced with all the uncertainty over which investments will perform best, I favor building a globally diversified stock portfolio. Which brings me to a somewhat radical notion. Suppose you are age 25 and you think you can get the optimal mix of risk and reward by owning, say, 45 large U.S. stocks, 20 small U.S. companies', 5 investment trusts, 25 stocks and 5 emerging markets. If that mix is optimal at age 25, I would argue that it is probably also the right mix at age 65. But what about changes in your risk tolerance as you grow older? I wouldn't fiddle with your mix of sectors. Instead, I would react to changes in your ris,k tolerance by changing your portfo- - .2. Act Your Age . . . stock-mark- real-estat- e stock-mark- tain at least 40 in stocks, while aggressive investors are usually told to cap their stock exposure at 80. And many investors, both young and old, will end up somewhere in between, with maybe 50 or 60 in stocks. lio's mix of stocks and bonds. n stock-mark- . The standard advice, of course, is that we should boost our bond holdings as we grow older. But in reality, our risk tolerance doesn't always decline as we age. "Youngsters are often much more risk averse than old folks, because they aren't accustomed to the market's volatility," notes William Bernstein, an investment ad-- , viser in North Bend, Ore. Indeed, your stock exposure in your 60s may not be much lower than it was in your 20s. But this isn't just about risk tolerance. It's also, once again, about owning the optimal mix of investments. As every investor quickly learns, bonds often perform well when stocks are suffering, and vice versa. Result: By buying' both, you can build a portfolio that delivers a more attractive combination of risk and return. If you run the numbers, you find 100 stock investors can trim their portfolio's overall price hurting returns-- by moving 10 into bonds. Similarly, 100 bond investors can boost performance without increasing risk if they shift 25 into stocks. In practice, the range of recommended portfolios is usually far smaller. Investment advisers typically suggest that retirees main 3. Take Twenty To build a portfolio, all you need is 20 stocks. Or so says one of Wall Street's most popular rules of thumb. There is some logic to this advice. If you own 20 carefully selected companies, your stock portfolio shouldn't perform much more erratically than the broad market. Volatility, however, isn't the only measure of risk. There is also the issue of "tracking error," the chance that your 20 stocks will earn returns that are far worse-th- an the market. Let's say you earn 6 a year, while the broad market clocks Doesn't sound like a big difference? On a $10,000 investment over 20 years, you would amass $32,071. But if you had notched the market's return instead, you would have accumulated $46,610, or 45 more. The lesson: To be diversified, you need far more than 20 stocks. bet-ter-- 8. 4. Invest for Income Retirees are frequently advised to load up on stocks, d How to Find the Really Cheap Airfares the cheapest airfares means just doing a quick search on OrbKz.com or Expedla.com. That's because most major travel-searc- h engines don't provide fare and flight information for many of the quickly proliferating Getting TRAVEL WATCH air- - ,ines" South- west Airlines, JetBlue and Independence to name a few, are popular carriers that aren't linked up to major travel Web sites. And even if an airline does post information on the popular sites, special deals may appear only on the airline's inAir, e dividual site. So how do you make sure to land the best-price- d flights? A couple of Web sites simplify g bargain-huntinfor flights even These among sites devote themselves primarily to the narrowly focused task of combing through many individual lines' Web sites to come up with lists of airfares. Such sites might appeal to you if you're worried about missing a cheaper fare on an individual carrier's site or want to avoid a travel site's booking fee. SldeStep.com is a search engine that is downloaded to your com- - . carputer. It scours several low-far-e riers' Web sites, such as those of air- e investlike utilities, ment trusts and dividend-payincompanies. But that isn't a strategy I would recommend. Partly, it's because you will have a lopsided portfolio. It is the same problem that young investors face, when they overweight growth stocks. If you overdose on dividend payers, you are making a big bet on one part of the market-a- nd it could turn out to be the wrong bet. The advice to buy dividend payers, however, also reflects muddled thinking about how to generate income in retirement. Remember the old axiom that you should "never dip into principal"? Believe me, it's alive and well. Many retirees are wholeheartedly committed to spending only their income and never touching their capital. "You often see older individuals advised to tilt their portfolios tog securiward ties," says Mr. Bernstein, the investment adviser. "But that's ridiculous. It's total return that matters, not income." In other words, you should aim for decent overall portfolio performance, whether those gains come from dividends, interest or price appreciation. But what about generating income? You can always raise cash by selling some of your stocks and g portfolio-bui- low-far- e JetBlue and Southwest Airlines, along with the major travel sites and the big carriers for the best ' fares. (While carrier. you still want to dig for better deals, or worry that a particular airline might be missing from your search, you have other options, too. A helpful list of many of the low-far-e airlines and the cities they serve is found at www. low-far- some consumers income-producin- bonds. With that in mind, I typically advocate that retirees maintain a cash reserve equal to five years of spending money, with this money bonds and parked in short-terfunds. As retirees spend down this cash reserve, they should look to replenish it, by selling some of their stocks and riskier bonds. If stocks fare well in a particular year, they can sell from that side of their portfolio. But if shares are suffering, they can leave their stocks alone and instead top up their cash reserve by unloading some of their riskier bonds. money-mark- Jonathan Clements also writes the "Getting Going" column that appears Wednesdays in The Wail Street Journal. Write to him at: jonattian.clements9wsj.coin worry about downloading software, the program didn't create any problems in a test run.) Sidestep asks for the standard information, such as the airport or city you want to. on the Web. Most airports' Web sites also include a depart from, your destination and full list of airlines that fly out of desired travel dates. You also can select a box and search for fares the airport, so you can scan the full list for low-far-e at nearby airports, too. SideStep carriers and searches several sites and posts then go to their Web sites directly. the airfares in order from cheapest Don't get too caught up in just to most expensive. Once you find airlines. The seeking out low-far-e the flight you want, you click on it , price gap between carriers such as and it redirects you to the Web site United Airlines and Delta Air Lines from which you can buy the ticket. and the "discounters" has narOne intriguing (and possibly an- rowed and sometimes you can find noying) feature: When you search cheaper flights on the major carrifor flights on other travel sites such ers these days. So the major travel as Orbitz.com, the SideStep tool sites, including Orbitz.com, Traveloc-ity.coand Expedia.com, can be a pops up along the left, side of the window and offers to do a simultagood place to begin shopping. ' Prlcellne.com' neous search for the same dates. s Another site, MoUsslmo.com, feature can also reap bargains. scours more than 60 travel suppli- Also, the travel sites include a ers at once, including many low-far-e perk that many sites zeroing in on airlines and international carriers, airfares don't: travel packages. and displays a list of the cheapest Traveloctty.com, for instance, sells flights it finds. Again, you click on , packages with airfare the flight you want and are rediand hotel stays (and sometimes a rected to the seller's site. However, rental car) for much less than Mobissimo doesn't include listings you'd pay for them individually. from Southwest Airlines, the largest By Kelly K. Spon if Your Broker Turns Interested in doing a quick on a stockbroker? Then tap into the public database of one of Wall Street's watchdogs. The National Association of Securities Dealers, a regulatory group that polices big brokerage firms that make , trades on its Ql Nasdaq stock INVESTING market, is " stepping up its efforts to make sure firms promptly report customer complaints and stockbroker misconduct. For individual investors, this means the regulator's Internet database is a potentially rich resource. Last year, more than 2.8 million investors used the service, NASD says. "Investors depend upon and are entitled to uptodate information about their brokers when maki ing investment decisions," says Barry Goldsmith, NASD's executive' vice president for enforcement Keeping the database current is critical for investors. The Central Registration Depository, or CRD, was set up in 1981 and is the only national databank tracking information about brokers. Regulators ' l the things you might Health WatCh Up on Gripe and in turn the public rely on se- curities firms to report everything from customers' complaints over such things as alleged excessive trading in their accounts to a broker's dismissal for whatever reason to any sort of criminal conviction. ' Regulators require that firms report broker infractions in a timely fashion, generally within 30 days of learning about an issue. NASD plans to take action against a number of brokerage firms for dragging their feet in filing incidents with the database. In August, for instance, Morgan Stanley agreed to a $2.2 million fine to resolve allegations that it was slow in disclosing 1,800 incidents of customer complaints and more serious problems involving its stockbrokers the first of many such cases that NASD says it plans to bring. The regulator, which launched an investigation into filing delays several months ago, charged Morgan Stanley for supervisory failures relating to the delays and barred it from registering new brokers for one week. The $2.2 million fine Is the largest levied by NASD against a securities firm for tardy filing. . Among to Ask Jeeves (ASKJ): search Web site did a that traded below $1 two years ago rebound to $31? And how can a site that draws only 7 of search traffic, versus 35 for Google (GOOG) and 26 for Yahoo (YHOO), according to Oppenheimer Investment Research, keep on thriving? By some yardsticks, the stock looks cheap compared, with its growth prospects. Based in Emeryville, Calif., Ask Jeeves operates Ask.com, a search site known for ability, in which you just type the question as you'd ask it aloud. Like many rivals, Ask Jeeves makes money through paid prioritization of results. It runs a British version of the site, and AJKids.com, which offers carefully screened results. A Japanese site is in beta testing. Midcaps' Appeal Ask Jeeves popped up recently on our screen of midcap stocks, defined here as those with market values or "capitalizations" of $1 billion to $5 billion. Midcaps generally boost earnings faster than large companies but slower than small ones, so it stands to reason that their stock performance would fall in the middle, too. But they're less likely to fail than smaller companies, so they do better as a class. The Standard & Poor's MidCap 600 index has returned an average 13.9 annually for 10 years, two percentage points more a year than the S&P Small-Ca- p 600, and more than three points better than the larger index. As for Ask Jeeves, many rival e search sites now handle questions. But some features separate Ask.com. A handy pop-u- p preview of each site comes up in the list of search results (just mouse over the binoculars icon). And analysts say the site positions paid listings in a less intrusive way, increasing the percentage of users who click through to them. sales for Ask Trailing Jeeves total just $159 million, compared with $1.9 billion for Google and $2.6 billion for Yahoo. But Ask Jeeves has squeezed about $36 million in net profit from those' sales, natural-languag- margin of about higher than Google's 10 and Yahoo's 14. It doesn't yet offer ad placement on its pages. Management has said it wants to increase its search mar ket share to at least 10 before ad division. building an for a profit Brisk Growth r sales Still, jumped 136 from a year earlier to $60.3 million. And profit, excluding a $4.1 million amortization charge, more than tripled to $15.7 million, or 24 cents a share. Ask Jeeves management calls its relationship with Google symbiotic; the two deal have a through 2007. Analysts estimate the total cost of starting a commercial-grade search site at $100 million, which may deter newcomers. Ask Jeeves's managers say it's "monetizing" only about 15 of search queries now, a figure they think they can push above 30 within three to five years. Managers say that, in particular, they expect to sell more local search (yellow-pag- e listings and the like) placement to chain stores. One Question Ask.com won't an swer is "Are Ask Jeeves shares cheap?" (It defers to search spon- sors like Charles Schwab for that one.) The comDanv trades at 30 times 2004 earnings, much lower than Google's 93 and Yahoo's 99. Of course, the case can be made that Ask'Jeeves is a distant third to the other two in search traffic (a distant fifth if we count Microsoft-- , owned MSN and Time Warner's America Online, with shares of 14 and 11, respectively, according to Oppenheimerl and therefore deserves a lower profit multiple. But analysts, on average, think Ask Jeeves will boost earnings 25 annually over five years. That's slower than Google's projected growth rate of 34 and Yahoo's 36. But divide the priceearnings ratios by the growth rates, and the resulting PEGs tell the story: Ask Jeeves's 1.2 is well below Google's tv. .. I vnlAAt no l T 6.1 cuiu xauuu a .0, aa ncu ao 111c S&P 500's PEG of 1.6. second-quarte- n 11 Jack Hough is an associate editor of SmartMoney.com. lettersSsmartmoney.com By Andrew Blockman If Using the Web to Find Health Coverage the right health be a huge if you are a recent graduate, a temp worker or between jobs. The Internet has a lot of helpful resources, however, letting you compare prices, evaluate different plans, get advice on which plan is right for you, and even apply for a plan online. While affordable coverage may still be tough to find, these tools at least make it easier to make an informed decision. "If you don't get insurance from an employer, you fall into the abyss." says Sara Horowitz, executive director of Working Today, a New York nonprofit that advocates for independent workers. In fact, about 45 million Americans went without health insurance in 2003, according to a recent Census Bureau report. Average premiums, meanwhile, rose more than 11 in 2004 to around $10,000 annually for family coverage. And for people buying coverage on their own, rates can be even higher. "People who buy in the individual market pay'more on average than people who buy' through an employment-basegroup," says Hanns Kuttner, senior research associate at the University of Michigan's Economic Research Initiative on the Uninsured. Whereas groups negotiate a flat rate; in the private market od news if you're on your you're young and healthy, but problematic for those with conditions. Finding d See j a Bargain? Jeeves: Are You real-estat- of the blame, I believe, lies with conventional financial wisdom. Consider the four lding guidelines below. All four guidelines are extremely popular-a- nd they're all seriously flawed. 1. By Jack Hough SmartMonOy & List In settling, Morgan Stanley neither admitted nor denied the charges. A statement said it has seen a "significant spike in arbitration cases as investors, unhappy about losses after the Internet bubble burst, have filed more claims. The firm says it has taken steps to improve operations, including installing new litigation-tracking software and developing a procedure to remind staff lawyers what sort of events must be reported to regulators. NASD's database is available at www.nasd.commvettof online. Click on the box at top right titled "Check Your Investment Professional's Background,' which leads to a screen labeled "NASD Broker-CheckBy following straightforward directions on the next few screens, you can find out if there are any "disclosure events," as NASD calls them, by entering the broker's name. If there are, the words "Disclosure events: Maybe' will pop up. After clicking on that, click on "Deliver Report NASD says it processes requests within two busi- ness days, generally sending responses by email. By Sumnvm Craig own-go- Searching the Web So, how can you go about searching for health coverage on . the Internet? First, figure out the local rules. Each state regulates health insurance separately, with big implications for the type of plan available and the premiums you pay. Some states offer particular protections that you should be aware of, such as guaranteed coverage no matter what conditions you have. Georgetown University's Health Policy Institute has a comprehensive guide on its Web site, www. healUunsurancelnfo.net. Mr. Kuttner says that people who need health coverage tend to call the same insurance broker who handles their home insurance or other plans. If you have a broker you trust, you could get a good state-by-sta- Coming Up With a Plan A sampling of Web sites for finding health insurance: www.ahrq.govconsumer Advice on choosing a plan, with definitions of all those confusing healthcare terms like HMO, PPO, POS and COBRA. www.eheatthlnsurance.com Gives quotes from dozens of insurance companies and lets you apply online. www.healttilnsurancelnfo.net Comprehensive euide to each state's rules on hearth insurance. --V ffV3 i www.healthcholces.org Gives plans and providers ratings for quality, service and reliability. www.nalc.org Provides links to state insurance departments. . plan that way. But with more information on the Web these days, it can't hurt tajook around to make sure you're getting the best deal. Before checking prices, decide what type of plan is right for you. Are you willing to pay a high premium for comprehensive coverage, for example, or do you want to reduce the premium but risk having to pay more if you do get sick? The federal government has a couple of excellent guides to the various options at www.ahrq. govconsumer. Scroll down to the brochures listed under the heading "Health Plans." When you're ready to compare prices, a good place to start is You can ehealthlnsurance.com. get quotes from different insurance companies just by giving basic information. Then when you've decided on a plan, you complete a more detailed online application. The site offers various types of plans, including short-terplans providing basic, affordable coverage for several months, useful for people who are Some of the more general insurance sites such as Insnrance.com and Insure.com also offer quotes, so try several different companies to get an idea of the rates on offer. Be aware, though, that all "instant" quotes offered online can be increased later as the company makes more inquiries about your health. The Internet also can help you check the quality of plans you are considering. The nonprofit National Committee for Quality Assurance offers a health-insuran- "report card" on health plans on its Web site, www.healthchoices. org. Based on reviews and surveys of health plans, it assigns ratings in categories like "access and ser-vice" as well as saying whether the plans are good for maintaining health, recovering from illness, or for managing chronic illness. To check a plan, choose "See How Your Health Plan Rates" from the menu on the left, then either look for a particular plan or compare all plans in your area. Check With Commissioner You can also visit your state insurance commissioner's Web site. These are the people who regulate health insurance in your state, and some of the sites have a wealth of informa'aon, such as pricing comparisons or lists of insurance companies they are taking action against for fraud of other violations. The National Association of surance Commissioners provides links to all state insurance-departmesites at www.nalc.org. Choose "State Insurance Web Sites" from the map of the U.S.' on the right, then click on the link to your state from the map that follows. , About 30 states also provide help to people who are "uninsurable" in the private market because of serious illness. Go to www. naschlp.orgstatespools.htra for links to these state programs, known as "risk pools." Send email to Andrew Blackman at: tmdrew.blackmanewsJ.corn 'I |