Focusing on growth with a long-term horizon

Q: I'm heavily invested in aggressive-growth stocks. I have, of course, taken a real beating in the past couple of years. But I'm a big believer in high technology and my horizon is long. I don't plan to retire for another 30 years and in that span of time I could ride the profits of – who knows? – perhaps firms that make equipment for moon colonizers. Wouldn't it make more sense for me to stay in growth mode than to reallocate based on what's happening now?
D.H.C., Hamilton, Mass.

A: "Over the long haul, a good growth fund ought to provide a solid return," says Russ Kinnel, who heads up equity analysis for information firm Morningstar Inc., in Chicago. "But a lot can change in 30 years," he says. Today's hot sectors may falter, as has happened with biotechnology in recent years. And today's hot company may stumble, or be taken over by a firm that is less innovative. A good growth-fund manager may be adept at jumping to the latest hot sector. But change comes fast, and if a dip should occur near the end of your 30-year run, you might not have time to recover.

"Don't overlook value companies," Mr. Kinnel says – slow growth but steady firms that chug along year after year, such as General Motors. Over time, he notes, growth funds and value funds tend to balance each other out.

Q: I put a fairly large amount of money in mutual funds, with the American Funds group. Since then, the market has been declining steadily. I now think I have invested too much in mutual funds. Should I get out of my funds now, before the market goes lower, and then I have to wait many years for the funds to come back? Or should I invest in bonds where the money will be safe?
K.B., via e-mail

A: "For tax reasons, you may want to sell off some of your mutual-fund holdings so that you can take capital losses," says David Bendix, who heads up Bendix Financial Group, Garden City, N.Y. "If you are close to retirement, you may want to put some of your holdings in bonds – such as tax-free municipal bonds if you are in a high tax bracket, or short-term government securities or GNMA funds if you are in a lower tax bracket."

But remember, he says, bond funds can suffer losses, as interest rates change. "If you are a long-term investor, then you must think like one," Mr. Bendix says. That means keeping as much as you can in stocks, and riding out the current doldrums, he says.

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