A Case For Diversifying

Eyeing retirement, California attorney courts stocks and bonds

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Just four years ago, Pamela L. Jones was on the outside of the stock market looking in. Now, she’s a market enthusiast with a full-fledged diversified investment plan that generates dividends and income for her retirement nest egg.

A conservative investor with a moderate risk tolerance, Jones is trying to grow her net worth substantially. At the advice of her financial advisor, Percy E. Bolton, president of Percy E. Bolton Associates Inc. in Pasadena, California, she contributes the annual maximum–$10,500–to her 401(k) plan. She has worked as a public defender for the county of Los Angeles for 10 years. She opted out of the city’s 457 compensation plan because participation in both plans limits an individual’s maximum retirement contributions to $8,500.

In addition to her 401(k), Jones owns a traditional IRA and a Roth IRA, both with the Vanguard Group. The accounts are invested in fixed-income investments, so “the returns have not been that great,” Jones says.

To offset that slow growth, she’s gotten her feet wet in the stock market, buying $2,500 worth of Intel (Nasdaq: INTC) and $2,000 worth of Sun Microsystems (Nasdaq: SUNW). The stocks have split several times since she purchased them two years ago; at one point, her holdings in the stocks were worth $20,000. She still owns them, but they were recently valued at $10,000 combined.

Part of Jones’ winning strategy is to seek investment help when necessary. Although she had an investment plan in place, she turned to Bolton in 2001 for direction on how to invest a lump sum savings of about $50,000 that she accumulated in a money market account. “I wanted to be assured that a part of my portfolio was in more stable investments, more conservative, goal-directed investment vehicles,” Jones explains. “I want to make sure I am clearly diversified and proceeding on a certain track.”

Bolton diversified her savings into a wide-range of no-load mutual fund products: 15% in Scudder Large Co. Values Fund (SCDUX); 15% in J.P. Morgans Tax Aware Enhancement Fund (JPAEX); 15% in the White Oak Growth Stock Fund (WOGSX); 10% in the Ariel Appreciation Fund (CAAPX); 10% in the Ariel Fund (ARGFX); 15% in the Northern International Growth Equity Fund (NOIGX); 15% in Vanguard’s Intermediate-Term Tax Exempt Fund (VWITX); and 5% in cash.

Bolton also suggested Jones diversify her other investments, creating a 60% equity and 40% bond allocation, in an effort to grow wealth, minimize capital gains, and reduce her tax consequences. Specifically, for her 401(k) account, he advised her to increase the allocation to 55% in fixed-income investments such as corporate bonds–since they are interest bearing–and invest the remaining 45% in equities.

In reviewing her total financial plan, Bolton also advised she cancel her life insurance policy since she is not married and has no dependents. But he advocated maintaining her disability insurance, which costs $200 a month and pays 40% to 50% of her annual gross income if she is injured.