Brilliant returns require patient investing

No doubt about it, Rona Crystal, a database designer with Standard & Poor's/DRI Corp. in Lexington, Mass., is organized.

She reads widely about finance, keeps meticulous records, gives the heave-ho to nonperforming mutual funds, and keeps the good stuff for years.

Example: When she left her job with Fidelity Investments back in 1976, she had four mutual funds worth about $2,000. She's still got them, although now they have soared to almost $90,000. That's proof, she says, of the power of compounding and the advantages of "buy and hold" investing.

Ms. Crystal, who is in her 40s, would like to retire by the time she reaches 55. Her objective is to save as much as possible.

She feels she's on her way. Of her total investment portfolio, 65 percent sits in her company's 401(k) tax-sheltered plan and IRAs, and 35 percent is in taxable accounts. She is primarily a mutual-fund investor, holding about 23 funds, six of them in the 401(k) plan.

But she also dabbles in individual stocks. Last October, for example, she bought shares in her parent company, McGraw Hill, which owns Standard & Poor's. At the time, shares were running about $75. They are now up to the $110 range.

She also has shares in computer-firms Sun Microsystems and Oracle, both of which she knows from her work. "Its sort of the Peter Lynch thing," she says, referring to the longtime Fidelity Magellan Fund manager and investment guru.

"Buy the companies you know and understand," she says.

Crystal, who owns her own home, says she is not especially worried about market turbulence. She remembers when everyone "was horrified" about the market "falling 20 points" back in 1974.

Now, a 10 percent correction is usually greeted with relative indifference on Wall Street, she says, because everyone knows the market "tends to head right back up in a short period of time."

Crystal does her homework, looking for funds with solid track records rather than what's red-hot for the moment.

She avoids high-risk funds which, to her, means avoiding sector funds, including those that focus on Internet stocks. So far, she says, her returns average about 18 percent a year.

Among steps she takes:

*She saves up during the year for her IRA contribution, which she then deposits on the first day of each January, to get maximum impact of compounding.

*She budgets, and her budget accounts for everything, including a pet horse. "The goal of the horse," she laughs "is to be fed and lazy." The horse is now up for sale.

*She keeps careful records and uses multiple spreadsheets to track her portfolio. Crystal notes whenever a fund's price goes up to make sure she has recorded its highest value. She's not as careful when a fund goes down. For slumping funds, she makes an entry at the end of the month.

*Most important, she says, "stay invested" and ride out market downturns. "I've never sold on a bear market," she says.

"Given her computer-based talents, she has obviously done very well," says Gary Schatsky, a financial planner in New York.

"But I am concerned about her assumptions for retirement. If she can retire in seven or eight years after 5 percent a year returns, I wouldn't worry. But I'm not so sure we'll see lots of 18 percent a year returns from here on out. They will probably be closer to the historical norms of 10 percent a year.

"Second, I wonder if she has too many funds. Perhaps she needs to consolidate somewhat.

"Finally, she may need to make sure she has sound bond fund exposure."

Mr. Schatsky adds that as she gets within a year or two of retirement, she might make her portfolio more conservative to protect profits.