Suggestions for the Neophyte Who Wants In

This column is dedicated to the people who believe they have been passed up by the mutual fund revolution--in other words, anyone who has money to invest but not the foggiest idea where to put it.

Suppose you’re about 50 years old, with perhaps $30,000 you intend to transfer from a low-yield bank account into mutual funds. Further assume that you have a decent job and can afford to leave the money alone for at least five years, without touching principal or interest. You’re not sure whether you’ll need this cash to supplement your retirement income, but at any rate, you don’t intend to retire before you turn 65.

With these constraints in mind, what types of funds might be appropriate?

This was the scenario presented to three fee-only financial advisers, all of whom specialize in no-load portfolios--that is, funds that do not charge up-front fees.

Although their suggestions should be taken with a grain of salt, since each investor’s circumstances will vary, the advice could shed light on what types of funds and allocations might be appropriate.

One adviser, Michael Ryan of Paragon Asset Management in Wilmette, Ill., suggested a split between stock and bond products.

He would place roughly half the $30,000 in the Pimco Total Return Fund, which holds a combination of government and high-quality corporate bonds.

Remaining assets would be spread among four stock funds, to include an international and a real estate portfolio.

Ryan, a certified financial planner, attempts to achieve each client’s goals at the least possible risk, but he cautions people not to forget about purchasing-power risk. Investors aren’t likely to beat inflation in the long term by keeping their cash in overly conservative vehicles such as certificates of deposit and money market funds, he says.

“Contrary to popular belief, stocks are really not that risky if you diversify and give them time to perform,” he says.

Another certified financial planner, Patricia F. Raskob of Raskob Kambourian Financial Advisors in Tucson, Ariz., had an even higher stock fund exposure.

She would place $5,000 into both Vanguard U.S. Growth and the Scooner Fund, which focus on large and small stocks, respectively. Another $7,000 would be divided among three foreign funds and a real estate fund.

Like Ryan, Raskob figures real estate securities are fairly cheap, add diversification and offer something of an inflation hedge.

Because stock markets around the world are trading at lofty levels, Raskob says, she would park the remaining $13,000 in a money market portfolio. But even this would be earmarked for the stock market--she would gradually transfer the cash into the six equity funds at a rate of roughly $100 a month.

Systematic investing of this sort, known as dollar-cost averaging, is a proven way to ease into volatile funds without risking your entire sum at what could be a dangerous level. Ryan says he also likes that approach.

Most aggressive was Douglas B. Fletcher, a chartered financial analyst at Fletcher Capital Advisors in Newport Beach. He would divide the $30,000 equally among six equity funds--four domestics and two internationals.

A 33% stake in international funds isn’t unreasonable when you consider that foreign shares make up about 66% of total world stock values, he says. His two foreign favorites are Tweedy Browne Global Value and Warburg Pincus International Equity.

Fletcher is an active asset allocator. He says he tends to stay fully invested in equity funds, citing the stock market’s tendency to appreciate over time. Of note: His six recommended stock funds are all still small enough “that they can grow substantially larger without damaging performance.”

From these suggested portfolios, two salient facts should be clear.

First, stock funds are heavily represented, accounting for 50% to 100% of the portfolios, even though it was assumed the target investor was unsophisticated.

The rationale here is that diversified portfolios of stocks--such as stock mutual funds--can be expected to surpass the returns on bond and cash investments over reasonably long periods (five years or more). Inflation stacks the odds against fixed-income products, notes Ryan.

Second, and equally important, there’s no such thing as a consensus favorite fund--as indicated by the fact that the three advisers offered completely different sets of recommendations.

This points out the futility of trying to find the very top fund, especially if you’re putting your investment plan on hold while attempting to do so.

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The Northridge earthquake isn’t likely to lead to rising defaults by Southern California municipalities that have issued tax-free bonds. That’s the word from John Nuveen & Co., a Chicago-based investment firm that specializes in munis.

“The general impression we have received is that public officials are reasonably confident that they will be able to continue making bond payments on a timely basis,” says a recent Nuveen research report.

The company predicts most municipalities will be able to absorb any earthquake-related damage because many were covered by earthquake insurance.

That’s good news for investors in any of the more than 90 California tax-exempt bond funds.

The Portfolios in Detail

Here’s how financial advisers Michael Ryan, Patricia F. Raskob and Douglas B. Fletcher would put together a mutual fund portfolio for the hypothetical 50-year-old investor discussed in the accompanying article. The person is assumed to have $30,000 to invest and a willingness to not touch the money for at least five years. All funds charge no up-front fees. Ryan’s Portfolio

Phone Suggested Fund Type (800) Investment PIMCO Total Return Bond 800-0952 $14,800 Janus Fund Growth 525-8983 $7,200 T. Rowe Price Intl. Stock International 638-5660 $3,300 IAI Emerging Growth Small co. 945-3863 $2,700 PRA Real Estate Securities Real estate 435-1405 $2,000

Raskob’s Portfolio

Phone Suggested Fund Type (800) Investment Vanguard U.S. Growth Growth 662-7447 $5,000 Schooner Fund Small co. 420-7556 $5,000 Fidelity Real Estate Real estate 544-8888 $3,000 Montgomery Emerging Markets International 572-3863 $2,000 Janus Worldwide Global 525-8983 $1,000 Oakmark International International 476-9625 $1,000 Money market fund (unspecified) ---- $13,000

Fletcher’s Portfolio

Phone Suggested Fund Type (800) Investment Oakmark Fund Growth 476-9625 $5,000 PBHG Growth Small co. 809-8008 $5,000 Robertson Stephens Value Plus Small co. 766-3863 $5,000 Selected American Shares Growth, income 243-1575 $5,000 Tweedy Browne Global Value Global 432-4789 $5,000 Warburg Pincus Intl. Equity International 257-5614 $5,000

Note: IAI Emerging Growth has a normal minimum of $5,000 but can be purchased for $250 through Charles Schwab.