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By Jason Stipp | 06-03-2011 05:08 AM

Five Investments You May Not Need

A well-planned, hands-off portfolio likely eliminates the need for these more specialized offerings, says Morningstar's Christine Benz.

Jason Stipp: I am Jason Stipp for Morningstar, and welcome to the Friday Five.

Regular viewers of know that Morningstar's Christine Benz is a big fan of keeping it simple, and in that vein, she's joining me this week while Jeremy Glaser is on vacation, offering five investment types you may not need. Thanks for joining me, Christine.

Christine Benz: Jason, great to be here.

Stipp: So, Christine, you're joining me today with investment types that you may not need, and when you say you may not need them, you're talking mostly to those longer-term portfolio planners, and not necessarily the traders, right?

Benz: Right. So people who want to be hands-off, and in my travels when I'm out and about speaking, I talk to an awful lot of people like that who want to build sort of a "set it and forget it" portfolio. They're not traders; they're not speculators. This advice is for them, not for the traders and speculators.

Stipp: Okay, so number one investment type that you may not need is focused on an area of the market that is of great interest to Morningstar readers: dividend-paying stocks. These seem like generally a pretty good idea, but you're saying you may not need to go out and buy a [dividend-focused] fund.

Benz: Well, that's the thing. So yes, you do want dividend-payers in your portfolio. It's certainly valuable to have companies that are going to pay their investors first, and our colleague, Josh Peters, enthuses about them all the time, as do a lot of our users.

What I would say, though, is if you've got a good low-cost diversified fund in your portfolio, the odds are really good that you've got plenty of dividend-payers right there, and you've also got plenty of dividend yield right there.

So, a plain-vanilla low-cost S&P 500 index fund right now has an SEC yield of about 1.75%, whereas the typical fund with "dividend" in its name actually has a lower SEC yield than that. So, costs are the name of the game, really, if you're looking for dividend-paying stocks--either you want to buy them directly or you want to opt for a very low-cost product that will get you some dividend-payers along the way.

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