Published June 7, 2005

T. Rowe Price Portfolio

When many investors think about no-load mutual funds, the first two names that come to mind are Vanguard and Fidelity. The third name that should be, but often is not, on the list of big no-load fund families is T. Rowe Price. The company has a great lineup of funds and has quietly built itself into an industry powerhouse.

Sticking to my Keep It Simple Stupid (K.I.S.S.) idea, I'm going to offer up portfolios from each of these three families, using, for the most part, actively managed funds. The idea being that investing directly with just one fund family simplifies the overall process. Keep in mind, however, that one fund family can't be everything to everyone, so there will have to be compromises along the way, but the benefits, in my opinion, would outweigh the negatives.

I'm going to start with T. Rowe Price since you don't hear about it as often as Vanguard and Fidelity—call it my contrarian bent. The Value Line portfolio I'm going to use is the Moderate Risk/Long Time Horizon, or model number six, which calls for every asset class except cash and gold/natural resources.

In the large-cap growth arena I've selected T. Rowe Price Equity Index 500 Fund. This is a punt on my part. I'm not a real fan of the company's actively managed large growth offerings, so this is a way to pick something without really picking anything. For the large value component, I've selected Capital Appreciation Fund. This is a great fund with strong performance numbers relative to both its Growth/Income peers and the S&P 500 index. Moreover, it tends toward the low-risk side of the equation, which will help to offset the fund-specific risk of some of my other picks.

I'm taking a different approach than normal with the small-cap component of this portfolio because one of the two funds I would have selected is closed to new investors and I don't like my other options. As such, I'm recommending just one fund, T. Rowe Price Extended Equity Market Index. Essentially, this fund tracks small- and mid-cap stocks. I'm using it to cover both the value and growth components of the small-cap boxes; as such, it will make up 15% of our model portfolio (this is the combination of 8% in small-cap growth and 7% in small-cap value). This is not a willing choice; I would have preferred to select T. Rowe Price New Horizons Fund, which is still open, and Small Cap Value Fund, which unfortunately is closed to new investors. T. Rowe Price's other small- and mid-cap value offerings are all closed, too, so there is no way to fill the small value component. I am unwilling to forget about small value, though, so using an index to cover both is the best option available right now. Should Small Cap Value Fund open up, however, you should consider making changes.

Foreign stock makes up a large percentage of this portfolio. I don't mind that, though be aware that the dollar's decline has aided many funds here the last couple of years. This could lead to a cooling-off period. That said, I've selected T. Rowe Price International Growth & Income as a conservative international offering. It has solid numbers and its risk level isn't outlandish. This will help to balance out the inherent risk in the 16% allocation to emerging markets that the model portfolio dictates. To fill this slot, I've chosen Emerging Markets Stock Fund. It's a good performer with a reasonable level of volatility for its asset category.

With regard to domestic bonds, I'm still hesitant to move out too long on the yield curve. I'm convinced that long-term interest rates are going to move up, even if the Federal Reserve's rate hikes haven't yet sparked a rise. Nothing stays at historically low (or high) levels forever. Accordingly, I've picked T. Rowe Price Short Term Bond Fund. There really isn't anything special to say here—it's a short-term bond fund. For the high-yield component, I would have selected High Yield Fund, but it isn't open to new investors. Instead, I've picked Tax Free High Yield Fund. The fund has a good long-term record with an acceptable risk profile. If High Yield Fund reopens, however, I suggest you switch. On the foreign-bond side, however, I've selected a pretty risky offering: Emerging Markets Bond Fund. Sure, I could have chosen the less-risky International Bond Fund, but the fund isn't as good over the long term, albeit for those concerned about risk, International Bond Fund is a better choice. Looking at the long-term nature of the model portfolio, however, I think it's all right to be a little more aggressive. Besides, the ultra-conservative Short Term Bond Fund will help to offset some of the added risk of investing in emerging-market debt.

As I noted above, there are no allocations to gold/natural resources or cash in this portfolio, so these two asset-allocation slots are blank. When creating this portfolio we used $1 million dollars as the size of the portfolio, though that much isn't needed. Indeed, each of the funds I've selected (including the alternate in the foreign-bond component) has a minimum investment of just $2,500. My picks and the allocations for each are listed above.

Reuben Gregg Brewer
Editor