Intelligent investment

Intelligent investing Read tips from the pros, and common sense ideas, on how to maximize your investments. June 7, 2005: 1:28 PM EDT By David Futrelle, George Mannes and Cybele Weisser, MONEY Magazine

NEW YORK (MONEY Magazine) - Making the most of your investments can be as simple as diversifying across asset classes and rebalancing once a year. The following tips include wise words from the pros and advice about splurging on that once-in-a-lifetime stock.

Invest the same amount in a mutual fund every month. That ensures you'll buy more shares when they're cheap and fewer when they're expensive. T. Rowe Price's Automatic Asset Builder program, for one, lets you contribute as little as $50 a month to nearly any of its funds -- and limbo under the usual $2,500 minimum initial investment (800-638-5660; www.troweprice.com).

Look for mutual funds that have expenses below 1.33 percent for stock funds and 0.89 percent for bond funds. Study after study shows that keeping investment costs low is the best way to increase your odds of earning a high return. Cheapest of the cheap are index funds from Vanguard (800-851-4999; www.vanguard.com) or Fidelity (800-343-3548; www.fidelity.com).

If you really want to own the next big thing, set aside no more than 5 to 10 percent of your portfolio for those "swing for the fences" choices. You'll get your thrill -- but won't do yourself too much harm if (as is more common) the stock doesn't live up to its hype.

Diversify your portfolio beyond our shores and you'll reduce risk and have a shot at higher returns. Put at least 20 percent of your money overseas. Start with two MONEY 50 funds: Artisan International (Research) for stocks, and American Century International Bond (Research) for bonds.

Every Aug. 1 (or pick your own day), trim back investments that have grown and add to those that have lagged to match your ideal portfolio allocation (use our Asset Allocator). Do this once a year and you automatically sell high, buy low and, studies show, add measurably to your final return. Or put your money in a fund that allocates for you, such as Fidelity's Freedom Funds (800-343-3548; www.fidelity.com).

"They're the cheapest that I've seen them, compared with bonds, since 1981," says Tom Marsico, manager of two top-performing large-cap funds, Marsico Growth and Marsico Focus. He likes GE (Research), UnitedHealth (Research), Genentech (Research) and Procter & Gamble (Research), which are dominating their markets and generating cash.

Long-time value investor Wally Weitz points out that at $2,840 for each B share (Research), you're buying, at a discount, a highly diversified portfolio overseen by the greatest investor ever, Warren Buffett. "Whether the market goes up or down, or interest rates go up or down -- whatever opportunities come or go," says Weitz, "Warren's thinking about investing your money on a daily basis."

Stocks that Bill Nygren, manager of Oakmark and Oakmark Select, likes include Wal-Mart (Research), Home Depot (Research) and Kohl's (Research). "The opportunity five years ago was in mundane businesses left behind in the irrationally exuberant market," he says. "The opportunity today is superior large businesses that are priced as if they were average."