Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Investors have until April 15 to fund an IRA for the 2018 tax year. Joining me to share some mutual fund picks is Russ Kinnel. He is director of manager research for Morningstar.
Russ, thank you so much for being here.
Russ Kinnel: Glad to be here.
Benz: Russ, you brought a short list of funds that are particularly worthy core holdings that you could hold in an IRA for many, many years. At the top of the list, I think, is a name that will be familiar to many of our Morningstar.com viewers. This is Vanguard Wellington. First, let's talk about its availability. Because people might say, hang on a sec, it appears that this fund is closed. Not so, correct?
Kinnel: That's right. It's closed to outside channels. But if you go through Vanguard, it is still open. So, you can still get in as long as you have an account with Vanguard.
Benz: This is a fund that invests mainly in stocks but also holds some other securities, bonds, and so forth. Let's talk about how it approaches the portfolio. It's an active fund, even though a lot of people associate Vanguard with passive investing.
Kinnel: That's right. Not surprisingly, it's run by Wellington management, and it's about two-thirds equity, one-third fixed income. The equity side has a value tilt. So, there's a bit of an out-of-favor bet there, because value has been out of favor. But I just like it because it's a great core holding. It's super low cost. It's active, but it's priced like it's passive. So, really low cost, which of course, is a great thing for long-term investment. Wellington is a deep team. I feel like it's something you can buy and just keep contributing to and you don't have to do a lot of work to take tabs on what's going on with the fund. It's a pretty dependable fund. I just think it ticks a lot of boxes. Throws off some income, which is not a bad thing to have in a tax-sheltered account. So, really works on a lot of levels.
Benz: Another fund that you like is American Funds Capital Income Builder. This is another one where investors might say, hang on, I'm a do-it-yourself no-load investor, why are you recommending an American Funds. Let's talk about that first--its availability for no-load investors.
Kinnel: That's right. American Funds like most load funds now is available without a load through most of the NTF supermarkets. If you are investing in Schwab or Fidelity or any of the other NTF markets, you should be able to get in. Yes, I'm recommending a load fund, but you don't have to pay the load.
Benz: It's the F share class.
Kinnel: That's right. It's the F share class, which can be a little confusing. But the F share class is still a pretty good value. And again, we've got a really deep team at American Funds. This is, again, another two thirds, one third kind of mix of equities to fixed income. The biggest difference here versus Wellington is the equity side is globally focused. The fixed-income portfolio is still pretty domestic, but the equity side is globally focused. We have an even broader reach for this fund, and again, a really good core holding. Again, it's income-focused. They are looking for income-producing equities and then it's kind of a high-quality fixed-income side. So, again, it throws off a fair amount of income, which I find appealing. And I think just a really nice stable fund--Capital Group really does these sort of income strategies well.
Benz: Right. And the reason that an income strategy might be particularly appropriate for an IRA is that you are not paying taxes on a year-to-year basis on those income distributions.
Benz: Let's look at a pick that is all equity, Dodge & Cox Global Stock, again, with the global emphasis. Let's talk about why this might be an opportune time, especially if you are a long-term investor to top up your non-U.S. holdings.
Kinnel: Foreign equities have underperformed the U.S. for a number of years. And so, if you've been leaving your portfolio alone and haven't really made changes, that means your foreign equity weighting has probably been declining. So, this is a good way to correct for that because it's got a global focus. And Dodge & Cox, I think, is just one of the best organizations out there. They are just very good stewards, low-cost. The analysts and the managers there tend to make a whole career of working at Dodge & Cox, so tremendous stability. A good value strategy. Dodge & Cox, because it's a value strategy they have their ups and downs, but the long-term results are good. They still have really good people there. We also have a lot of confidence in them.
Benz: Russ, thank you so much for being here to share these IRA picks.
Kinnel: You're welcome.
Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.