Finally, to respond more directly to your investment question, I would like to recommend two sound, all-around diversified mutual funds that you can cut your investment teeth on, once you have covered the bases of goal-setting, budgeting, insurance protection and emergency savings. The first is Vanguard Wellington Fund. This is a mutual fund with a history that reaches back to 1929. It invests in a mix of stocks and bonds designed to provide some growth over the years but with a bearable amount of volatility. The fund was recently invested about two-thirds in stocks and one-third in bonds and cash. In the last 12 months, Wellington (the trading symbol is VWELX) earned a total return for shareholders of slightly over 17%; of course, this was a 12-month period when the stock market was recovering from a three-year bear market. Over the last five years, the fund earned an average of 5.79% a year.
An alternative is the T. Rowe Price Balanced Fund (RPBAX). This is a little more conservatively structured of late, with half its assets in stocks and half in bonds and cash reserves. It's latest one-year return was almost 18%, but for the last five years it lagged the slightly more aggressive Wellington fund with an average annual return of 4.37%. T. Rowe Price and Vanguard are highly respected fund families with below-average expenses, and either of these well-diversified funds will provide good entry-level experiences in investing. As you and Beth put aside investment money each month, you can "dollar-cost-average" into the fund of your choice.
As you gather a little more experience, you may want to make your own mix of stocks and bonds by owning some T. Rowe Price Spectrum Income (a blend of various Price bond funds) and Spectrum Growth (which owns a number of Price stock funds). These are "funds of funds" insofar as the management of the Spectrum funds decides for you the appropriate proportion of short-term and long-term bonds, U.S. and foreign stocks and so forth. If you had invested 60% of your money in Spectrum Growth a year ago and 40% in Spectrum Income, your total return would have been 22.6%! For the last five years that mix would have netted you 5.3% a year.
Keep up the good work, Paul. I hope our general advice about financial priorities will be helpful. Please look into the recommended books, tapes and Web sites, which I am sure will help you and Beth become masters of your financial destiny. And don't hesitate to give us a call if you need a little extra help with questions or problems you encounter on the way.
J. Michael Martin, JD, CFP, is president of Financial Advantage in Columbia, Md.