A "Desert Island" Fund

02/03/2006 12:00 am EST


Keith Fitz-Gerald

Chief Investment Strategist, The Money Map Report

"There's an old adage that the ‘best offense is a good defense’ and it's ironically even more true in investing than it is in sports!" says Keith Fitz-Gerald. Here, he offers his favorite fund pick for not just the year ahead, but as his favorite "century" investment.

"Contrary to what most investors believe, being defensive does not mean giving up high growth potential and current income. In fact, if you study the math involved, higher certainty investments like the one I'm about to share with you actually bolster returns because they free up capital for more incremental risk. In other words, by making sure the bulk of your money is stable, you have the flexibility to take a few speculative shots and not worry about risking too much.

"My pick hands down to fit this bill is the Vanguard Wellington (VWELX ). In fact, I call it my 'desert island' fund because if I had to go away for 100 years and could leave one investment for my progeny, this would be it because of its growth potential and current income. Not only is it one of the oldest funds in existence, but since 1929 its managed to capture nearly 85% of all the market's ups, including a number of 20% plus years. But that's only half the story.

"With approximately 40% of the fund's holdings in high quality corporate and government bonds with a maturity between five and 15 years, the fund is remarkably stable when the going gets tough. That's why it has a three-year Beta (risk measure) of .69 or 31% less than the markets themselves, so you are immediately insulated from the market swings that give most investors ulcers, yet maintain substantially all of the upside potential. Plus, it kicks of a 2.89% yield. In an increasingly challenging environment, I don't think there's a better ‘offensive defender’ for your portfolio, whether it's $5,000 or $5,000,000."

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