Janet Brown’s 5-Fund Portfolio for Peace of Mind

03/24/2017 2:50 am EST

Focus: FUNDS

Janet Brown

President, FundX Investment Group

We categorize funds into various groups; here, we are focusing on Class 4, which can be a good option for those who want to get back into the market without taking on too much risk, explains Janet Brown, money manager and editor of NoLoad FundX.

This category focuses more attention on how to invest for stable growth. When you invest in a way that can build wealth and limit losses, you may be better able to stay invested long enough to fund a comfortable life in retirement and even have something left for your kids or grandkids.

These funds typically invest in both stocks and bonds so they have a built-in buffer against stock market declines.

Most Class 4 funds are balanced funds, and while these funds often have similar names, they invest in very different ways. These variations lead to notable differences in performance.

During bull markets, funds with more exposure to stocks bring in higher returns. In down markets, however, funds with less exposure to stocks usually hold up better.

Class 4 is mostly made up of balanced funds, but it also includes preferred stock funds, which pay a fixed dividend like bonds, and also alternative funds.

The alternative funds in Class 4 may use options, arbitrage or alternative assets as a hedge against volatility rather than relying solely on bonds. Funds that invest in both long and short positions are typically less volatile than a long-only equity fund.

If you want to invest in Class 4 funds, we suggest that you buy these five highly-ranked Class 4 funds:

Dodge & Cox Balanced (DODBX)
Greenspring (GRSPX)
Oakmark Equity & Income (OAKBX)
Schwab Hedged Equity (SWHEX)

This five-fund portfolio can be a great option for investors who are managing more modest portfolios, and it can also help you get invested again without taking market-level risk.

Because most Class 4 funds aren’t fully invested in stocks, they typically lag the S&P 500 in up markets, but the trade-off is that these funds hold up better in declines.

For many investors, that peace of mind is far more valuable than the opportunity to beat the market. If you find that fears of a big market sell-off or major losses are holding you back, the Class 4 funds might be a way to get back on track.

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