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Give Your Portfolio a Check-Up

By Doug Fabian
President, Fabian Investment Resources
Host, The Doug Fabian Show

All of the 3rd quarter reviews are in. And despite a grisly period for the Nasdaq Composite, stock mutual funds fared reasonably well.

Across 14 Lipper fund categories, 12 gained ground. Mid-caps were particularly sharp, as mid-cap value jumped 6.8% and mid-cap core grew 7.3%. 

Many individual segments of the economy shined as well. Of the top 20 U.S. performers, 11 came from financial services. Health care and real estate showed respectable gains as well.

But the bigger question is, how did you do? How did your 401k -- your most important money -- perform from 7/1/00 to 9/30/00?

Here's a simple process to get the maverick perspective on how your investments are doing?

Step 1. Get your current 401(k) statements for the 3rd and 2nd quarters together -- you'll need to do some basic math.

* A is the value of your 2nd quarter statement

* B is the value of the 3rd quarter statement minus the dollar amount you and your company contributed to your 401(k)

You want to figure out which is bigger -- A or B? Hopefully it's B! But remember, a lot depends on the performance of the choices in your 401(k).

Step 2. Check your portfolio and 401(k) choices against the Lipper stock fund averages. This is as easy as going to the Mutual Fund Review in Barron's, Wall Street Journal or a major metropolitan newspaper. Even easier, the numbers for all of the stock fund categories are at a number of web sites, including MFI and Fabian.com.

How did your large-cap growth fund perform compared to the C-grade, average large-cap growth fund? What about large-cap value, small-cap value and small-cap growth over 1, 3 and 5 years?

Step 3. You've got to sell significant underachievers and lemons immediately. We update the Fabian Lemon List -- funds that underachieve their Lipper benchmark averages for 1, 3 and 5 years -- every quarter. Look for the 3Q Lemon List, coming soon.

Step 4: Increase your cash position. By selling lemons, underachievers, asset allocation funds, and bond (bomb) funds that do not have the ability to grow at annual rate of 20%, you're able to raise cash for the upcoming growth season.

Right now, the Nasdaq is 35% off its March highs. That's a 7-month bear for the tech sector, even if the bullish media refuses to address it. What's more, the Russell 2000, S&P 500 and the Dow Industrials have experienced significant corrections. That means, people with large cash positions heading into November, the start of the growth season in stocks, will be able to purchase great bargains in the best investments around.

Step 5: Prepare Your Buy List. Now that you know what's hot and what's not in your 401(k), you want to make certain that you have a buy list ready to go. November is right around the corner.

Assuming the trend signals are up, I've mentioned several potential buys in the most popular 401(k)s. I'd look to leadership from Invesco Blue Chip Growth (FLRFX), the Janus Fund (JANSX), Fidelity Mid-Cap Stock (FMCSX), Selected American Shares (SLASX), and, with strong evidence of a broad-based tech rebound, PBHG Growth (PBHGX).

If none of these popular funds are in your 401(k), look for a fund that is similar in risk, sector weightings, holdings and performance. 

Doug Fabian is president of Fabian Premium Investment Resource and editor of the company's four subscription-based newsletter products. For more information on these services and the highly rated Fabian Plan, including how it can help you attain your goals of growth and income using today's best no-load mutual funds, visit the Fabian web site at http://www.fabian.com/.