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By Jason Stipp and Christine Benz | 11-18-2013 04:00 PM

Benz's and Kinnel's Picks for Starter Portfolios

Morningstar's directors of personal finance and fund research list some favorite topnotch building blocks for beginning investors.

Jason Stipp: I'm Jason Stipp for Morningstar.

As part of Morningstar's Investor Starter Kit, we're delving into investment selection on Wednesday, and here to talk about some of their favorite funds for first portfolios are Russ Kinnel, our director of mutual fund research, and Christine Benz, our director of personal financial.

Thanks for joining me.

Christine Benz: Jason, good to be here.

Russ Kinnel: Good to be here.

Stipp: There are a couple of different ways that you can build a portfolio, and we're going to talk about some of the different segments and some of your favorite funds in those segments.

We're going to start off broad, for folks who want more of an all-in-one solution or a more inclusive solution, and one of the ways to get that, of course, is target-date funds.

Christine, among your favorites for broad exposure are, in fact, from target-date series.

Benz: Absolutely. These funds really do a lot of the heavy lifting for you. They set your asset allocation and then they gradually make it more conservative over time. And they also rebalance back to that target allocation.

That combination of factors has tended to make target-date funds a really effective solution for investors. When we look at investor returns for target-date funds--that's looking at the cash flows coming in and out of the funds--what we see is that investors seem to do a really good job of buying and hanging on in these funds, in part because so much of the work is being done for them behind the scenes. So, the actual investor dollars in target-date funds have out-earned the funds' total return. Investors have had a good experience in these products.

Stipp: There are a lot of different fund companies that offer target-date series. What would be your recommendation for investors who are interested in target-dates?

Benz: They are not good across the board, but we do think that some of the best funds are very, very good. Vanguard's target-date series is one of our favorites. Of course, it has very low costs working for it--a primarily index-based approach with just 0.14% in asset-weighted expenses within the series.

T. Rowe Price's [target-date series] is the other series that we like a lot for no-load, do-it-yourself investors. Those funds are primarily composed of actively managed funds and so are a little bit more expensive. They are also a little bit higher on equities than is the Vanguard lineup, but we like both series quite a bit. I think that it would be hard to go wrong with either series if you just want to set it and forget it.

Stipp: Russ, another kind of fund that you can use if you are looking for more of an all-in-one option, although not quite as automatic in some respects as a target-date fund, is a balanced or an allocation fund, and your pick is in that area.

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