October 19, 1997

Q. I am 25 and an engineer at a medical device company. I live at home and am saving as much as I can for retirement, putting 20 percent of my pay into my company's 401(k) program: 40 percent in Fidelity Advisors Growth Opportunities, 20 percent in PBHG Growth, 5 percent in Putnam Diversified Income, and 35 percent in Templeton Growth. Is this portfolio well diversified for my age?

P.B., San Diego

A. At your age, diversification isn't everything. I'd forget about that tip of the hat to the fixed income markets (the 5 percent in Putnam Diversified Income). You likely have something like 35 or 40 years before you'll be drawing on these funds, and the odds are overwhelming that over that time, stocks will deliver significantly better returns than bonds.

So what's left? Fidelity Advisors Growth Opportunities is a large-cap growth fund, PBHG Growth a mid-cap growth fund, and Templeton Growth a large-cap world stock fund with a value orientation. Since 72 percent of the Templeton investments are beyond US borders, this certainly gives you fine international exposure. But I think there are two elements missing here if you are seeking a well-diversified growth portfolio. One, of course, is a small-cap fund, and another is the health care sector, which I think provides wonderful opportunities for an ultra-long-term investor. If your menu offers anything in either of those categories, I would add them. My instinct would be for an allocation such as 25 percent in Fidelity Advisor Growth Opportunities, a similar level in Templeton Growth, 20 percent each in PBHG Growth and the small-cap fund, and 10 percent in a health care fund.