Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Jason Stipp and Christine Benz | 06-05-2014 04:00 PM

5 Go-To Investments for Your Portfolio Makeover

Investors looking to upgrade, diversify, and simplify their portfolios can start here, says Morningstar's Christine Benz.

Jason Stipp: I'm Jason Stipp for Morningstar and welcome to The Friday Five.

Sitting in for Jeremy Glaser this week is Christine Benz, our director of personal finance. She just finished five makeovers for Morningstar.com's Portfolio Makeover Week, and she has brought five go-to investments if you're doing your own makeover.

Christine, thanks for joining me.

Christine Benz: Great to be here, Jason.

Stipp: Congratulations on finishing those five makeovers. I know they're a lot of work.

Benz: Thank you.

Stipp: You brought some investment ideas that came up in your makeover portfolios as good go-to investments that a lot of different investors may incorporate depending on their situation.

We're going to start with the least risky and move up the scale. The least risky is more of a classification of investments: stable value. Why might these be go-to investments for folks?

Benz: Stable value funds are only found inside of 401(k) plans. One reason I like them and oftentimes keep them when they show up in a "before portfolio" is that they do offer higher yields than you will earn on true cash instruments. They're not true cash instruments. There is perhaps a little bit of risk here, but these funds buy insurance contracts to help keep their net asset value stable. Historically, there have only been a few instances of stable value funds having any fluctuation in investors' principal value.

So you're able to earn a slightly higher yield than you can on true cash instruments, but you're virtually guaranteed that stability of principal. So this is a go-to investment for people who have cash in their portfolios and potentially want to be able to pick up a little bit of extra yield.

Stipp: Could it be a reason to not roll over some of your money out of a 401(k) if you want that exposure, given that they're only available on those vehicles?

Benz: That's definitely something to wrestle with and to think about. In one of the makeovers we did this past week, for example, the person who had the 401(k) fund wanted to hang on to it in part because she liked the stable value option. You'll want to think about how much of your portfolio you want to have in cash before you make a decision like that.

Some companies allow people to do partial rollovers. So you can keep enough in the stable value fund to keep that 401(k) plan open, but you can roll over the rest of your assets into long-term securities. That's a good compromise if that's available within your plan.

Stipp: Your next go-to investment, a pretty safe one on a number of fronts, is Vanguard Short-Term Inflation-Protected Securities. This is not your typical TIPS fund. Why is that?

Read Full Transcript

{1}
{1}
{2}
{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
{1}
{5}
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article
    Username: