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Sept. 23, 2008, 1:31 p.m. EDT

A Portfolio Fix for Conservative Investors

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By Brett Arends

What every investor needs right now is a copy of "The Hitch Hiker's Guide to the Galaxy."

Not just because the comic sci-fi novel can give you a good laugh.

But also because it has the words "Don't Panic" written across the cover in big, friendly letters.

The Dow, which was up about 400 on Friday, fell about that on Monday. Oil, which had collapsed in recent weeks, skyrocketed.

Yikes.

At times like this it's hard to fight the urge to react – either by splurging or by selling. Emotion takes over.

But all you can do, all anyone can do in this situation, is to knuckle down and stick to established principles.

If you are under 50 you should definitely be investing in the market, albeit in stages. I've recommended some closed-end funds along with global index and value-oriented mutual funds. You won't catch the bottom of the market, so don't bother trying.

(Your stock picks won't beat the index either, so save yourself time and money and don't try. Very few investors beat the index over the long term, and those tend to be brilliant managers working full time. Even if you really are better at this than Warren Buffett, don't you have another job to do as well? He doesn't.)

If you are over 50 and you are taking a beating, and especially if you are over 65, you may need to take your portfolio to the doctor for a checkup. In simple terms, the older you are, the less you should hold in the stock market and the more you should hold in bonds and cash.

One of the few positive developments in the financial engineering boom of the past five years has been the emergence of many more mutual funds pursuing different strategies and styles. You can use them to put together a pretty sophisticated portfolio.

As an illustration, I asked New York based portfolio manager Ron Roge, who runs R. W. Roge & Company, Inc., what he was recommending for clients who want the most conservative portfolio around.

Mr Roge says he puts 20% of their money in Pimco All-Asset All Authority /zigman2/quotes/205609764/realtime PAUIX +0.91% , a multi-asset, total return fund; 20% in First Eagle Global Value /zigman2/quotes/209280485/realtime SGIIX +1.27% , a stock fund; 10% in the Loomis Sayles Bond fund /zigman2/quotes/205119786/realtime LSBDX +0.30% run by bond market veteran Dan Fuss; 10% each in total return funds Hussman Strategic Total Return /zigman2/quotes/204827253/realtime HSTRX +0.54% and Alpha Hedged Strategies; 10% in Gateway /zigman2/quotes/209052117/realtime GATEX +0.73% , a veteran stock fund that uses derivatives to try to smooth returns, 10% in the go-anywhere BlackRock Global Allocation /zigman2/quotes/205546109/realtime MALOX +1.20% ; 6% in the quirky Prudent Bear /zigman2/quotes/209249238/realtime BEARX -1.60% fund, which has traditionally held a lot of gold and which profits when the market falls, and finally 4% in a money market fund.

Using data from Lipper, Inc., the fund analysis service, I looked to see how this portfolio would have fared over the past five years. And it did pretty well. It's up about 49%, even after fees, and that's with low volatility. It was even up 2.4% in the year through the end of August.

Multiple caveats. This is purely an illustration. It is only one possible conservative portfolio. It surely won't be the "best" one. Portfolio construction is one of those disciplines where there are lots of right answers - as well as lots and lots of wrong ones.

And I have always assumed, as a variant of Murphy's Law, that the day I wrote an article outlining an "ultra conservative" portfolio for people who want to pull back from the stock market would probably prove to be the bottom of the bear market. If shares start booming upwards again the moment this appears, perhaps you will have me to thank.

Write to Brett Arends at brett.arends@wsj.com

/zigman2/quotes/205609764/realtime
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$ 8.85
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/zigman2/quotes/209280485/realtime
US : U.S.: Nasdaq
$ 68.32
+0.86 +1.27%
Volume: 0.00
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/zigman2/quotes/205119786/realtime
US : U.S.: Nasdaq
$ 13.50
+0.04 +0.30%
Volume: 0.00
May 14, 2021
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/zigman2/quotes/204827253/realtime
US : U.S.: Nasdaq
$ 14.81
+0.08 +0.54%
Volume: 0.00
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/zigman2/quotes/209052117/realtime
US : U.S.: Nasdaq
$ 38.59
+0.28 +0.73%
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/zigman2/quotes/205546109/realtime
US : U.S.: Nasdaq
$ 22.85
+0.27 +1.20%
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/zigman2/quotes/209249238/realtime
US : U.S.: Nasdaq
$ 8.02
-0.13 -1.60%
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