Jason Stipp: I'm Jason Stipp for Morningstar. It's Tax-Wise Investing Week on Morningstar.com, and one of the big things investors can do is maximize those tax-advantaged accounts, those IRAs.
If you're looking to put some money to work, Morningstar's Russ Kinnel, director of fund research and also the editor of Morningstar FundInvestor, has some ideas. He is joining us today.
Thanks for being here, Russ.
Russell Kinnel: Good to be here.
Stipp: So, you have been thinking a little bit about what to put to work in your IRA. It is IRA season. You have a few picks for us that kind of break down into a couple of different categories.
We know IRAs are great vehicles for long-term investors because of that tax deferral that you get. So, let's assume that there is going to be that long time horizon, but we know that investors have different tolerance for risk. So, for those who really want to be more conservative and want to put something solid in their IRA, you have a few ideas. What's your number one?
Kinnel: So, I want stable management, low cost, and diversification. So, let's start off with Dodge & Cox Global--a great world stock fund, low cost, very stable management there, but again a good long-term fund.
Stipp: With Dodge & Cox, the kind of team they are, are these funds difficult to hold, because we know sometimes active managers can take pretty big bets in certain areas of the market. The funds can be volatile, and we see investors tend to want to sell them when things get really rough or they want to buy them after they've done really well. How would you say, how easy is the Dodge & Cox fund to invest in?
Kinnel: Well, probably somewhere in the middle. They do have their biases. They lost some money in '08. So, that was challenging, but in other ways, it's a diversified portfolio, so it doesn’t get really crushed. They are very stable management, so you don’t have to worry about one manager leaving, and it's a sound strategy with a good long-term record. So, I will put it somewhere in the middle there, but I think if you know what you're getting, it's pretty easy.
Stipp: For those folks who are index-minded and also want to get that global exposure, what would you recommend to them?
Kinnel: Something like Vanguard [Total World Stock] Index or combining Vanguard Total Stock Market with an ex-U.S. index, something like that. So you're getting really low cost, great diversification, and again you don't have to worry about management or anything, so this is a fund you can put in your IRA and then you can contribute every year; you don't have to worry about it.
Stipp: With those world index funds, do they also give you exposure to emerging markets, or is that something you might want to go out and have a slug of that elsewhere?
Kinnel: That's a good question. Most world indexes have very little emerging-market exposure, and even not much small-cap exposure. So, they can cover a lot of ground, but you probably want to at least supplement it a little.
Stipp: Then, Russ, you have another pick from Vanguard that is actively managed, I believe. What's the story behind that one?
Kinnel: Vanguard Wellington is just a great balanced fund. It is advised by Wellington Asset Management, and they just do a great job. [It offers] value stocks on the one hand, high-quality fixed income on the other. It's mostly in equities, but it's a smoother ride than you'll get from a pure equity fund. It has a tremendous long-term track record, very low cost, so even though it's actively managed, it's cheaper than most index funds, so it's really a great deal.
Stipp: For a fund like that, that is balanced and does have some bonds, would you say that that might be something that's particularly attractive to folks who might be closer to retirement or maybe in their 40s and 50s?
Kinnel: I think so. Having about a third of assets in bonds smoothes that out. It means when tough years like '08 come along, your losses are a lot less. So, it's a lot easier to sleep at night with that kind of fund.
Stipp: So let's say that I like to be a little bit bolder in the funds that I'm putting in my IRA. I have a long time horizon. I know I can ride out some ups and downs, but I want to find a really great manager. What would you recommend to me on that front?
Kinnel: Well, one that I like is PRIMECAP Odyssey Aggressive Growth. It's just a really good growth fund, mid-cap growth, but the PRIMECAP team, again, they are very stable, just outstanding investors. I actually own a similar fund, which is closed, Vanguard Capital Opportunity, in my IRA. So, I'm not just making that up. I actually believe in that. But it is more aggressive. You have to have a longer-term focus, but over the long haul it should pay off nicely.
Stipp: If you are also looking to have some global exposure, and you're willing to also be a little bit bolder, what fund might you recommend for that?
Kinnel: I really like Artisan Global Value. No one has found it. It's only got $80 million in assets, but it's run by the same pair, Dan O'Keefe and David Samra, who run Artisan International Value, and they did an outstanding job there. I like having the whole world for them to pick. They are really good opportunistic investors, and so far they've done a great job, but somehow they have fallen off the radar with this fund.
Stipp: That smaller asset base, you think, could give them a leg up as far as what kind of opportunities they can target for the fund?
Kinnel: Yes, I think it gives them a little more flexibility, small and mid-caps could still make their way in. They run a pretty focused portfolio, and so I think that asset base really does help.
Stipp: All right, Russ, some great ideas for maximizing the value of your IRAs. Thanks for joining me today.
Kinnel: You're welcome.
Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.