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Gro w Y our Retirement Nest Egg

for example, large-company growth stocks were the best place to be. In recent
years, undervalued smaller companies have led the way.
Regardless of how you choose stocks, I advise you first to be sure that the

companies you choose are fi nancially strong, and that they are likely to gen-
erate sustained growth of both revenues and earnings over time, despite occa-
sional hiccups and regardless of changing economic conditions.

Good companies come in all sizes and types. By financially strong, I
primarily mean companies that have modest long-term debt, giving them
maximum flexibility. Many smaller and medium-size growth companies are

completely or relatively debt free, but a surprising number of larger blue
chips are also virtually debt free. My two favorite examples are Exxon Mobil
and Cisco Systems. However, many other fundamentally strong companies

may carry significant amounts of debt, yet they generate plenty of cash fl ow
to comfortably handle it.
I’m not suggesting that you never take a blind leap into a hot stock. Most
of us like to gamble at least a little, but remember that it is gambling. When
you’re investing to build your retirement nest egg, you’re investing money
that you cannot afford to lose. So your focus should be only successful com-
panies that are already making money for their shareholders—no rookies, no
story stocks, no gimmicks.
No matter which stock selection approach appeals to you, recognize that
it takes quite a bit of time to learn about markets, industries, and companies.
As Thomas Jefferson said, and I agree, “I’m a great believer in luck, and I fi nd
the harder I work the more I have of it.”

How to Pick a Good Mutual Fund

Now let’s look at funds. For most of us, traditional mutual funds are the best way
to go for at least some of our money. As I mentioned earlier, mutual funds enable

you to profit from companies in which you don’t have in depth information or
experience. There are roughly 8,100 mutual funds out there, with some $10.5
trillion in assets. It’s pretty easy to eliminate 85 percent or so of them from seri-
ous consideration, but the good ones are well worth looking for and keeping.
Here are the guidelines I follow when selecting mutual funds:

• I look for solid investment results over five years or more.

• Important: The managers who compiled that record should still be at
the fund.
• The fund’s performance is in at least the upper half, and preferably the
top quarter, for all funds of its type.

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