September 14, 1997

Q. I am 24 and would like your opinion of the allocation of my IRA funds. I have $2,000 in Vanguard's Horizon Aggressive Growth, $6,000 in Vanguard Windsor II, $3,000 in Vanguard Health Care, and $4,000 in Janus Overseas. I also buy the stock of my employer, which is provided at a 15 percent discount from market. Can I retire with a million dollars at age 59 1/2 by contributing $2,000 to the IRA every year until then?

N.B., Santa Clarita, Calif.

A. You should come fairly close. If I plug an assumption of 10 percent average annual growth and $166.66 monthly contributions to your $13,000 IRA into the computer, the number $979,507.26 flashes back. I add the 26 cents only to demonstrate how silly it is to expect a projection over 426 months to mean a great deal. My general feeling is that such projections should be viewed as approximations, providing a figure that should be within 10 percent of the eventual number.

If it's substantially higher, the likely causes will be either excellent investment choices on your part, or a general return to inflation, which would eventually increase apparent investment returns, but which would also sap their real value. (None of my calculations reflect the value of your company stock holdings, for which you didn't provide figures.) I think you're well poised for good long-term returns on your portfolio as currently constituted. Vanguard Horizon Aggressive Growth is a bit of a misnomer at the moment, since it maintains a value-oriented mid-cap portfolio, with none of the overconcentrations in segments, such as technology and health care, that are frequently associated with aggressive growth funds.

In short, a good vehicle for the current stock market, in my opinion, but one with a track record so short -- the fund is only 25 months old -- that it's hard to project long-term prospects. I have frequently expressed my bullish feelings about Vanguard's Health Care for long-term investors, although I think your current allocation of a little more than 23 percent is a bit heavy. I wouldn't sell any, but I would allocate future contributions to your core holding in Windsor II and other sectors, holding the health care position to a 20 percent maximum. Similarly, I like your sizable position in Janus Overseas in the current market, but would eventually bring it down from its current level of more than 30 percent to about 25 percent. As far as I'm concerned, the best elements you might consider during the course of the next decade or so are a small-cap fund and a technology fund -- with no more than 15 percent to 20 percent of total retirement assets in each.

Finally, don't get spooked if the market enters a substantial correction -- just keep shoveling that money in, calculating that you're in the early years of a very long dollar-cost averaging campaign.