Daydream a little, but don't lose touch with reality.
Current talk in Washington about a revitalized individual retirement account sounds promising to an average investor striving to save a buck.
Yet until details are hammered out in Congress, this is a time of year when it makes more sense to keep your mind on tending to your existing IRAs and other self-directed retirement accounts. They're the backbone of your retirement goals and require regular updating.
Some of the nation's most respected investment letter editors have strong opinions about structuring a typical $40,000 IRA portfolio. I requested recommendations from them not only for younger investors in their 30s but for more mature folks in their 50s.
The mind-sets of these experienced advisers as they face a rather uncertain 1995 range all the way from squeamish to bullish.
"Treasury bills will beat the stock market averages in 1995, as in 1994," predicted Charles Allmon, editor of the Growth Stock Outlook in Bethesda. "If you're sitting on a mutual fund, you're sitting on a big loss right now, and I'd sell."
For the older IRA investor, Mr. Allmon would conservatively put 70 percent of a portfolio into three-, six- and 12-month Treasuries, the rest in the high-dividend stocks of New Plan Realty Trust, UST Inc., Bristol-Myers Squibb and Citizens Utilities. Younger investors should instead keep 60 percent in T-bills and add the stocks of Genuine Parts and Anchor Gaming.
Not all share Mr. Allmon's caution.
"I'm bullish and believe it will be a very good market year," declared Sheldon Jacobs, editor of the No-Load Fund Investor in Irving-on-Hudson, N.Y. "Our philosophy is to stay fully invested throughout the market cycle, becoming more conservative when the market is richly valued."
Younger people should place 15 percent in aggressive growth funds such as Janus Mercury, 60 percent in long-term equity funds like the Yacktman Fund, and 25 percent in international funds such as T. Rowe Price European, Mr. Jacobs believes. Those in their 50s should be slightly more conservative, stashing 65 percent in long-term equity funds such as Mutual Beacon, 20 percent in international funds, and 15 percent in a bond-and-some-stock income fund such as T. Rowe Price Spectrum Income.
Now some carefully measured optimism.
"I expect a market return more in line with historical averages of around 10 percent," explained Charles Carlson, editor of Dow Theory Forecasts in Hammond, Ind. "I see upward interest rate movement in the first half of the year, followed by stabilization."
Mr. Carlson's youth-oriented portfolio is 25 percent overseas funds such as T. Rowe Price International, 35 percent smaller-cap funds such as Columbia Special, 20 percent "regular" funds like Fidelity Disciplined Equity and 20 percent balanced funds such as Vanguard Wellington.
He suggests a different mix for older folks, specifically 15 percent international, 10 percent small-cap, 15 percent "regular" funds, and 30 percent growth and income. In addition, 30 percent would be put in Vanguard Fixed-Income Short-Term Corporate Bond Fund.
"We learned the last three years an investor does best by riding out dips and not buying into rallies," related Arnold Kaufman, editor of the Outlook from Standard & Poor's in New York. "I expect a 4 percent gain for both the S&P; 500 index and the Dow."
Three-fourths of a younger person's IRA should be in growth, such as the non-dividend-paying stocks Cisco Systems, Microsoft Inc., Thermo Electron and Adobe Systems, Mr. Kaufman recommended. More established growth choices that also make sense include Procter & Gamble, Talbots Inc., Pfizer Inc. and H&R; Block. For the remaining 25 percent, he likes zero-coupon Treasuries. The older individual's IRA portfolio should be about 50 percent zero-coupons.
"The market will be in a tug-of-war as attractive news on earnings results weighs on negative news from the Federal Reserve," said Jack Bowers, editor of the Fidelity Monitor in Rocklin, Calif., who expects a 10 percent rise in broad market indexes.
He'd put 100 percent of the younger IRA investor's portfolio in Fidelity Blue Chip Growth Fund because growth-oriented choices should "take off" once the Fed stops tightening. Older investors would put half in Fidelity Blue Chip, the rest in Fidelity Equity Income II.