Don’t Confuse ‘Boring’ With ‘Bad’

by Marc Bastow | December 21, 2012 8:25 am

InvestorPlace Editor Jeff Reeves was going around asking each of our writers and editors to pick one stock, just one, to hold for the coming year. He wasn’t looking for a long-term play — not a ‘forever’ stock[1] — just something to (hopefully) get you a big pop for a year before you swapped out next year to add to your retirement coffers.

That sets up some tough choices, and I must say I gave it some thought: 3D Systems (NYSE:DDD[2]), Apple (NASDAQ:AAPL[3]) and GE (NYSE:GE[4]) all came to mind. Then it occurred to me: They’re all individual stocks. Why not think about an index fund and let someone else pick out the names?

As MarketWatch‘s Paul Merriman argues, “[Index funds] can add money to your retirement savings and help you avoid making dumb decisions that may derail your dreams.”

Indeed, Merriman’s piece gets to[5] the very essence of my dilemma: diversification. It’s nice to think I can come up with the big winner in 2013 (and hopefully beyond), but the one-stop dream dies if it goes bad. Index funds may not take all the risk out of the market, but they do tend to smooth out some of the bumps and bruises of cycles.

“Index funds reduce risk through very high diversification. Some index funds own 10 times as many stocks as the average actively managed funds in their asset classes. This doesn’t guarantee higher performance, but it guarantees lower risk,” writes Merriman. And after all, isn’t this what we’re looking for in our retirement portfolios?

So, Mr. Reeves, here’s what I’m going with in my one-year retirement bucket: Fidelity Spartan Total Market Index (MUTF:FSTMX[6]). The index is a nice blend of stocks tracking the Dow, is returning nearly 17% year-to-date, and notched nearly 16% in 2011. Maybe slow and steady will win the race in 2013, and 16% might look pretty dandy come the end of next year.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he is long AAPL and GE.

Endnotes:

  1. a ‘forever’ stock: https://investorplace.com/2012/12/from-the-experts-4-stocks-to-hold-forever/
  2. DDD: http://studio-5.financialcontent.com/investplace/quote?Symbol=DDD
  3. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  4. GE: http://studio-5.financialcontent.com/investplace/quote?Symbol=GE
  5. gets to: http://www.marketwatch.com/story/10-ways-index-funds-can-save-your-retirement-2012-12-19
  6. FSTMX: http://studio-5.financialcontent.com/investplace/quote?Symbol=FSTMX

Source URL: https://investorplace.com/2012/12/index-funds-for-a-retirement-portfolios-one-year-wonder-ddd-aapl-ge-ftsmx/

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