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Show DA E4 Gsttln G0lr.By - I IV HERALD Sunday, September 7. 2003 Jonathan Clements The First Step: Choose Your Cornerstones where do I start? It's a question I get over over again from readers. Sure, they want to build that diversified portfolio that all the experts talk, about But with thousands of stocks and mutual funds to choose from, the entire exercise seems utterly baffling. My advice: Forget, for the moment, about picking individual in- - ' to strike the right balance between risk and reward, so that you have a decent shot at amassing enough money for your kid's college education and your own retirement Stocks, of course, offer the best chance to earn high returns. As the global economy grows, corporate profits rise. That drives share prices higher and allows companies to pay fatter dividends. But stocks are also a dicey endeavor. Think about the huge losses suffered by technology-stoc- k investors over the past three years and by holders of Japanese shares during the 1990s. To avoid such disasters, you need to spread your stock portfolio across a truckload of different companies, sectors and countries. For the vast majority of investors, the only practical way to get this diversification is with mutual funds. But even if your stocks are broadly diversified,, you will still short-tersuffer losses. To further reduce risk, you heed to toss in some bonds. Over the long run, bonds probably won't make you as much money as stocks. But bonds will often deliver gains when stocks are suffering, so they are your best bet for calming down a portfolio. But BUILDCSG THE RIGHT PORTFOLIO FIRST OF FOUR vestments. Instead,; start by sketching out the broad outline of your portfolio, including which types of investments you want to own and how much you will stash in each. Bidding With Blocks Every portfolio should begin with three building blocks: U.S. stocks, developed foreign-stocmarkets and U.S. rest-paying investments, such as bonds and money-markfunds. Think of these as the "Big Three." Yes, there are other parts of the global market that you might want to add to your portfolio, including e investment trusts, high-- . yield junk bonds and emerging-markstocks. But in the end, these smaller market sectors assets. aren't must-owBy contrast, if you want a diversified portfolio, you need to keep at least some money in bonds, U.S. shares and foreign-stoc- k markets. Indeed, the Big Three should probably account for 70 or 80 of your portfolio, and possibly more. k n FUND high-qualit- y Mixing It Up When you buy bonds and U.S. and foreign stocks, you are tapping into markets worth trillions of dol-lars. Your goal: Use these markets high-qualit- y Rodders' ForUltl IWtMUM M6RESSVE WVrSTOM I T Rome Price Retirement F $10,000 2020 INVESTORS , . ,, Conservative missed the original article and asked us to send you a copy. We receive so much mail that we can't do that but we do have a free on line archive. Go to the Web address on the first page of our Wall atreer journal sunoay section it s ngni oeiow our name at we lop or the page). At the WSJ Sunday home page, click on 'archive" in the left column. Type "preferred stocks" In the prompt area. We're also at http:tunday.wtl.com. WntertonKnfenday03Owtl.com. Include your name, street address and the paper In which you read The Wall Street Journal Sunday. Once you have sketched out your portfolio's broad outline, you next need to think about how much d you want to customize your thus how many mutual funds you should own. If you prefer the simple life, you could buy a single fund that includes a smattering of the Big Three investments. You can find a list of such funds in the accompanying chart. Alternatively, you could build portfo-lio-an- Dollarectomy Re: Health Watch, 'Where Does It Hurt? In the Pocketbook,' by Kelly K. Spors (Aug. 31): I have been working in medical billing at hospitals and doctors' offices for the last 15 years, and I can tell you mat no hospital I have worked for witl quote a price for a procedure. There are too marry variables to consider. blow! I'm still waiting for Ken Lay to put his house up for sale. Esther Day . St Louis h St Louis muinvested in two closed-entual funds under the mistaken impression they would allow me to take advantage of the benefits of true preferred stocks. Both funds invest primarily in trust preferreds, which fail to take advantage of the 15 taxation of qualifying divI d , --David Crook interest rates rose, these No Preference funds suffered significant losses. Gordon Gould Boulder, Colo. Denver Post I have been investing in ferreds tor some time now. Most La Verne, Cam. Inland Valley DaHy Bulletin Thanks for the good Sunday WSJ column on watching costs at PPOs. The moral I find in your column is, however, stick with HMOs. I'd rather live with their restrictions on providers than the billing confusion of other plans. Dennis BerthoM , idends. They both employ significant amounts of leverage, borrowing short and investing long. When long-ter- College Station, Texas e Station Eagle Bryan-Corteg- Note to the Editor Re: Investor's Calendar (Aug. "Tech-heavy- " is not part of the Nasdaq Composite Index name. I wish that someone would make a resolution to drop that modifier forever. Thanks for the wonderful job you all do on the WSJ Sunday. You never fail to pack volumes into three or four pages. Jim Fbtrts HOW TO CONTACT US 31): OwatfdMK barnn'thHttit maiHgbarrons.cpm MtDwJwsi --Tom Herman The Wall Street Jouma) Sunday 4300 Route 1 North South Brunswick, N J. 08852 askAiwjones.sundayS.com tos4Mftsunday03Owsj.com fcooi-jonath- UnAltaJeffOpdyke jonathan.derrrfc Emn-Kel- ly loverrKiney9wsj.com an Clements Greene iMiWsMf encorewsj.com edttcfs9srrBrtmoney.com Raidm? Fonac forum.sunday039wsj.com American-Statesma- n New Independent 529' Fights Inflation to to send your If youelitehope private college, a new ant child . option will help you handle skyrocketing tuition costs. With last college-savin- FAMILY R3ASE3 KJ. of the Indepen- - dent 529 Plan, parents can today's tuition at more than 220 private colleges, such as Princeton, Amherst and the University of Notre Dame. With annual tuition increases averaging nearly 6 for private colleges at a time when student debt Is mushroomina. manv families are looking for protection against tuition inflation. Tuition is an enormous problem for American families, says Doug Brown, president and chief executive of the Tuition Plan Consortium, the Albuquerque, nonprofit group that will oversee the plan. Penslorvfund gi lock In N.M.-base- d ' will administer the plan and manage its investments. Under the plan, the percentage of tuition paid is fixed. For example, if you invest 110,000 in the. plan now for a school that currently charges $20,000 a year, you would have locked in half a year's tuition no matter how much the school's costs increase by the time your child goes to school. :, As a bonus, each school offers an annual discount of at least a half of a percentage point off tuition, so your investment would cover slightly more than half the tuition In the year the child enters ' v , college. Investments are, purchased in the name of the child, not a specific school, so they will be good at any participating institution, Including schools that Join later. 'it's almost like a shopping certificate at the mall, Mr. Brown says. isn't admitted or chooses a school outside the plan, you can get your money back, adjusted for fund performance with a cap of plus or minus 2 a year. The money also can be rolled over without penalty to another benefiIf your child ciary or into a regular college-savinplan or a state prepaid plan. Potential downsides: Prepaid ' 1 3,000 your own portfolio, by combining a bond fund, a foreign-stoc- k fund and a VU.S. stock fund. Like that idea? You could take this further, divvying up your U.S. stock exposure between a fund and a small-stocfund and putting some of your bond money into a money-markfund. You might even divide up. your large stocks and small stocks, so that you own a e fund, a growth fund, a fund and a small-valu- e fund. Growth funds buy shares of rapidly expanding companies, while value funds favor stocks that are cheap compared with assets or current earnings. By using these more specialized funds, you can fine tune your investment mix, while also aiming to bolster returns by picking superior funds in each market niche. But whether you buy a single mutual fund or a fistful of offerings, don't lose sight of your overriding goal: You want a portfolio that includes the Big Three assets and you want to make sure you have the right amount invested in each. Next week: Rounding out your portfolio. high-qualit- y k large-compan-y large-valu- small-growt- h plans such as the Independent 529 could nave a bigger Impact than a .529 savings plan on your child's eligibility for financial aid. Withdrawals from prepaid plans are considered a student resource, which aid eligibility Also, you could miss out on higher Investment returns elsewhere. Parents can find out more information and check out the list of participating schools online at r. wwfaUnofrpsntfeiit52TJplin.org " or by calling By Jane J. Kim Benefits Seem Near Jonattan.cl6iiMnteQwaJ.Mifi Boron's By Eric J.Sovitz ISlSight - Check Your BlackBerry For an Overpriced Stock in Motion (RIMM), the Ontario, company that invented the BlackBerry mail pager, has been on a roll. Thanks to the addition of some sprffy hand-hekt- Research equipped with wireless email capability. Research in Motion isn't sitd ting still. It has introduced new devices with features cellsuch as color screens, built-iphones and murtiband radios, it also has a new strategy to allow phone and PDA makers to license the BlackBerry software. But the growing competition is a serious threat "At some point, wirewill be ubiquitous on less multiple devices," says Andy Neff, ' an analyst at Bear Steams. "There will be increasingly cheaper ways to get it And that presents a challenge to Research ip Motion's n . stock-mark- hardware model." Research in Motion also continues to struggle with a case. Last November, a federal jury in vlrginja found that Research in Motion violated five wireless patents held by a company controlled by a Chicago inventor. The court has ordered Research in Motion to pay $53.7 million in penalties, and to set aside 8 55 of revenue from continuing U.S. sales of BlackBerry gear. In Home-Comput- er may be a good time to your home computer. With competition intensifying . among tech giants such as Hewlett-Packarand Dell, computer prices have trickled lower in recent v months, with 8 rew con 4 TECH Now puter systems starting as tow as $399. "(Consumers have been holding on to their PCs a tot longer than we thought they would, says Sean Wargo, director of industry analysis for the Consumer Electronics Association: "That's ted to a very competitive landscape." To errrice more people to upgrade, tech companies are focusing on newer features such as DVD ' players and game software. PC incenin makers are also throwing tives such as free printers, OK financing, rebates, extra warranties and free shipping. Dell recently cut prices up to 22 on some laptops, desktops and equipment The company tow- - d WATCH ered prices $50 to $550 on desktops and dropped prices on printers and projectors about 10 to 13. Other PC makers, trying to keep up, will likely follow suit While analysts anticipate prices will continue to drop in the years ahead, they're not expected to decline as steeply as they have in the past six years or so. In earty 1997, the average selling price for desktops was about $2,500 and more than $3,500 for laptops, according to technology-industrresearcrier Gartner ina And since then average prices have fallen more than 50. Today, most companies have models that sell for "under $500 and can include a monitor, DVD player, CD burner and such. But it's hard to be certain the deals will last HewiettPackard has said it will raise prices this quarter after last quarters dismal earnings. And If sales improve, the buying incentives could evaporate. ' In any case, consumers shouldn't base their decision to up- y - J,, ,a.' .i o Richard ten Wolde is a staff writer for SmartMoney magazine: dltonOMiiartmoney.com the latest twist in the case, the court in August "arch In Motion icciioH an in. $30.. . junction barring Research in Mo- - 20 15 tion from sell- ing its gear in the U.S. but 5 . ! ' staved the rul! o ing pending apD3 Source: ItamstmBasefeK peal. The shares recently have been buoyed by rumors that someone would make a takeover bid. Reserach in Motion executives haven't commented, but their actions suggest that the . rumors are hooey. In August, 17 insiders to-- ' gether sold more than 200,000 shares of stock. Among the Sellers: is executive officer Mike and financial chief Dennis Kavelman. Needham analysts Charles Wolf and Justin Udelhofen consider the stock greatly overvalued, "it makes no sense on Mr. Udelhofen says. Mr. Wolf says RIM lose big once Dell and others enter the market next year: "Everybody will wake up some morning and say, 'The sky is falling." Expect a lot of people to read about will it first on their BlackBerrys. a senior 'editor in Palo Alto, Calif., for Barron's magazine, online at www.barrons.eom Eric J. Savitz is Upgrade? . , Colgate-Palmoliv- 25 welke-ceive- the company has extended busiits lead in the wireless ness.' With revenue on the rise, Research in Motion's shares have tri-pled in 12 months to about $28, giving the company a value of roughly $2.2 billion. Some investors find that valuation hard to justify. Research in Motion is profitable, but will probably earn just a few cents a share in its current fiscal year, which ends in February 2004. And there are problems ahead. For one thing, the company faces growing competition. Startups such as Seven Corp., Vlsto and Good Technology are Signing on both wireless carriers and corporate mformatiorvtechnology departments happy to have BlackBerry alternatives. An array of new hardware from makers of cellphones and personal digital assistants, including Dell and Handspring, will be Instead, money managers are most intrigued by otherwise bor ing industries. We think there s still great potential in the cyclicals because we don't expect the economy or the dollar to rally strongly" says Kail Bayer Pinker- lieu, a seiuur suaicgiai ai wciiui Lynch. During economic downturns and periods of slow growth, consumer staples hang tough because ies, people still buy the food and household products. e and Gillette So should do well, but the better value is Proctaf ft Gamble (PG, $91). After struggling to keep up with rivals in the late '90s, P&G, maker of Pampers, Tide and other products, has regrouped, purchasing Clairol and Germany's Wella, making the company No. 1 in hair care products. And despite sluggish European economic growth the past few years, P&G has been boosting sales by about 5 a year there. Another industy that should ie nanar maniifanritrorc . kAnofit LVUls 111 10 JupVI lUIUlUlUMUVIVi Because of the weak dollar, companies such as International Paper (IP, $40) and Weyerhaeuser (WY, $60) will be able to undercut their European competitors. . x i n t Auaijraia oay iiucuiauuuai mper will see the biggest benefits in its packaging-materia- l business, which was hit hard in the late 1990s, when exports flagged. International Paper has made good use of the downturn, cutting costs and reducing production while taking advantage of low interest rates to pay down debt. As the economy bounces back and employment rises, Weyerhaeuser should profit as demand picks up, with more white-collworkers printing out reports, agendas and memos. basics-toiletr- . Mr. Chan expects large companies with global franchises to start benefiting from the weak dollar by the fourth quarter and for the impact to really hit home next year. That leaves ' the question of what to buy. Traditionally, airlines and autos do well in this environ- - Jonathan Clements also writes the "Getting Going" column that appears Wednesdays in The Wall Street Journal. Write to him at: Ready for a Fredericksburg, Tsxas Austin ' 2,500 Growtti Running the Numbers V have been a godsend. The exceptions were Enron and Conseco. The latter was riskier than I should' have attempted. But Enron? No red flags around that one. What a . 1 2010 Tm waiting for Ken Lay to put his house up for sale 's We're still hearing about Jeff Aug. 24 story "What You Should Know About Preferred Stock." Several of you said you had . Boring Is Beautiful . 1,000 for-eig- d 800662-744- 7 ' remember, these are the extremes. The vast majority of investors should hold portfolios with between 40 and 80 stocks, with the rest in bonds. The lesson: There may be a bewildering array of stocks and mutual funds. But it turns out that the range of sensible portfolios is pretty small. What about foreign stocks? I have heard experts advocate putting as much as half of a stock portfolio in foreign stocks and as little as 10. But again, these are the extremes. Most investors should probably earmark 20 or 30 of their stock portfolio for foreign shares. Put it all together, and a conservative investor might have 60 n bonds, 30 U.S. stocks and 10 stocks. Meanwhile, an aggressive investor might have 60 U.S. stocks, 20 foreign shares and 20 bonds. 7. 3,000 2.500 CONSERVATIVE INVESTORS But in fact, history suggests that a portfolio with 75 bonds and 25 stocks performs no more erratically than an portfolio, but it should be far more rewarding. How can that be? When bonds tumble, stocks sometimes post gains, helping to smooth out a portfolio's performance. Similarly, if you want the highest possible return, the temptation is to go for 100 stocks. But if you plunk 10 in bonds, you will trim risk without sacrificing much, if returns. anything, in long-ru- n Admittedly, we're still talking about 90 stocks at one extreme and 25 stocks at the other. But 800638-566- 0 " Managed Allocation Vanguard UfeStrategy 2.500 - Vanguard STAR Fund Fidelity Freedom PHONE . Vanguard LifeStrategy Growth MODEMTESK MVESTMENT .V Index Fidelity low-ris- ; if f the mutual funds below, you can get a diversified portfolio in a single fund without paying a load,' or sales charge. Which brings us to a. critical question: How much should you invest in each sector? If you want a k portfolio, stashing 100 in bonds and money-markfunds might seem like the smartest strategy. ment, but those industries have been shaky lately. And while tech-- . nology companies can rake in additional business from overseas cli ents when the dollar is low, that sector seems to have already priced, in the good news. you're shopping on Wall Street or in Paris, you can't buy as much for a dollar'as you could a year ago. Stock prices have been on a rampage, and the dollar has fallen against the euro, Europe's common currency. But thanks to the depressed dollar, you can still find bargains in the stock market In early 2002, a euro was worth just 86 cents. It has strengthened to $1.08, despite a recent dollar rally that some strategists and money managers see as temporary. If the U.S. currency remains soft or weakens again, as many expect it will boost sales of American goods and services abroad by making them less costly. This revenue will translate into fatter earnings as foreign currency is converted into dollars, giving a boost to American companies doing business overseas. Anthony Chan, chief economist for Banc One Investment Advisors, estimates that U.S. companies rely on overseas markets for about 26 of their profits. So an uptick in sales can have a significant impact on earnings. In the late 1970s, when the dollar fell 18, corporate profits jumped about 20 a year. This time around, Mr. Chan says, most of the benefits are still ahead of us. That's because the proceeds of a weakening currency don't usually show up in the bottom line for several quarters. Economists call it the effect because at first, the cheaper dollar leads to a stalled economy, as domestic consumers pay higher prices for imports. But eventually, buying habits adjust and overseas sales take off. All of which provides a window of opportunity for investors. "Right now the economy is recovering and the value of the dollar is weak, and it's the best of both worlds,'' says Mr. Chan. 11 Shopping p With Setting Limits real-estat- Weak Dollar, Strong "TTThether One-Ste- inte- high-qualit- y By Richard ten Wolde SRCrtf'CnOy - ' l ,u. i I , De&ls. Desktop Some recent offers online: Mr.alM28 Desktop mcE $499 (after rebate) name: 17 monitor, Intel Pentium 4 drive. processor, 256 MB, Doksrrr Mcmoe CO burner, DVD player. aklaWlPaM''''; "fl fftia'iilf js.js mce$469.99 HOMES: Intel Celeron processor, MB, graphics card, CD burner. MEsrnKUJK 256 monitor, DVD player. race: $399 wcturw: Intel Celeron processor, 128 MB, partiesvideo card; BOEsrr MCLUoe monitor, CD burner, DVD player. Somo: WSJ maareh grade on price alone. People who use their computers primarily for email and Web browsing may well be able to use their old machines for several more years. By Kelly K. Sport |