Transcripts

"Money File" -Stick With The Strategy

PAUL KANGAS: Tonight's "Money File" commentator says, don't abandon your investing strategy just because the markets are rocky. He's Eric Schurenberg, managing editor at "Money" magazine.

ERIC SCHURENBERG, MANAGING EDITOR, MONEY MAGAZINE: In this frustrating market, some of the classics of investing style are beginning to look unexpectedly dowdy. An S&P 500 Index fund would have returned just 4 percent a year over the past decade and foreign stocks, which used to be just accessories, have begun to look increasingly essential. Is it time to rethink the old standards? Well, let's look at S&P index funds. Yes, their performance has been lackluster for a while, but not because the index and concept is bad. It has more to with the blue chips the S&P represents, which have been unusually out of favor. Adding small cap stocks would have helped, but you can do that without giving up the low costs and tax efficiency of indexing. Many big fund companies have total market index funds, which include small and mid-sized stocks as well as blue chips. How about foreign stocks? As economies abroad boomed, some strategists began urging you to put half or more of your money overseas. But then, you may remember the '80s, when everyone was sure that Japanese stocks would take over. That fad ended badly, a lesson in not chasing foreign stocks just because they're. On the other hand, Japanese investors would have been wise to diversify beyond their borders. So the answer's somewhere in the middle -- up your foreign holdings to somewhere between 20 and 30 percent, but don't rush in; act deliberately. The bottom line: adjust, but don't totally shake up your portfolio to incorporate new ideas. On Wall Street, big new ideas tend to sound smartest just before events prove them really dumb. I'm Eric Schurenberg.