| Sargent & Lundy Savings Investment Plan |
| MUTUAL FUNDS |
| The following excerpts are from a
newsletter prepared by Fidelity Investments, printed
Spring 1996. The opinions of the author, Mary Cusick, VP
of Retirement Communications, Fidelity Investments, may
or may not reflect those of the SIP Committee. Q. Are mutual funds a good retirement investment? A. A mutual fund pools the money of many investors into one fund with a common investment objective. These investment objectives can be growth, income, stability, or a combination. The professional portfolio manger manages the fund according to these objectives. They buy securities like stocks or bonds for the portfolio. When you invest in a mutual fund, it can do what many individual investors often can't do for themselves, which is take a small amount of money and split it over a number of different securities. In other words, diversify your investments. For example, if you had $1,000 you might buy one or two individual securities, but if you invest $1,000 in a mutual fund, you might take advantage of a portfolio of 50 or more securities. Diversification is a basic principle of investing, although it doesn't protect totally against losses. Another benefit of mutual finds is that you can keep track of a fund's performance. Find prices are generally published in most papers. Q. How should you select the mutual funds that are right for your retirement? A. You have to think about a number of things. The first thing to consider is your investment time horizon: how long is it going to be before you need to use your investment funds? Five years? Thirty years? The second is risk tolerance: do you get uncomfortable if the value of an investment varies a great deal? It's important to keep those two things in mind, your time horizon and risk tolerance. If you're looking at growth funds, one of the common characteristics is that they are probably more heavily invested in equities or stock. Over the long term, stocks have significantly outperformed the fixed-income and short term investments. If you invested $100 in stocks back in 1926 it would be worth over $99,000 at the end of 1995, based on the Standard and Poor's 500 composite index of 500 stocks. The same $100 put into fixed-income investments, represented by the Merrill Lynch Corporate Bond Master Index, would only be worth $4,600. That is a big difference. With money market instruments, you're looking at just under $1,300 based on the performance of U.S. Treasury Bills. Investing is not just about putting the money away, it's trying to make your money grow. What is the difference just a two percent higher return can make? Compare $5,000 annual contributions over 30 years. If your investments grew at six percent every year, it would be worth over $395,000 at the end of 30 years. If growth was eight percent, just an extra two percent a year, you investments are almost $612,000. The allocation mix for your investment portfolio is very important. It's certainly one of the first priorities for any investor. What percentage should be in growth funds? What percentage should be in growth and income funds? What percentage in fixed-income or short term types of investment funds? Making the allocation decision is critical to investment planning because a percentage or two difference in the rate of return could mean thousands of dollars more in retirement. It's important for employees to take the time to understand what their options are, select investment options according to their time horizon and risk tolerance, and look at their portfolio on a regular basis to make sure that the funds selected still meet their needs. |
This page updated on 9/8/97