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Diversifying Saves Some Gains

September 2, 1998

The stock market’s dramatic declines over the past six weeks have walloped most investors’ portfolios, but anyone who has followed the watchword ``diversify″ may not be hurting all that badly.

The Associated Press, which has tracked the stock market’s performance through a sample small investor’s portfolio, found that strong stocks have protected stock and mutual fund owners from disaster.

The portfolio, put together at the close of trading on Oct. 23, is up 16.12 percent since then _ a strong showing compared to a .26 percent drop in the Dow Jones industrials over the same time period, and a healthy return even with the market’s recent performance.

How can that be? Because the portfolio holds stocks that have done well since the portfolio was put together: Wal-Mart is up nearly 76 percent over its Oct. 23 price. Coca-Cola is up 18.3 percent and IBM is up 17.5 percent.

Those gains have offset a 42.5 percent drop in the portfolio’s Morgan Stanley Dean Witter Pacific Growth Fund, and built on the relatively mediocre 4 percent rise in the Vanguard Index Trust 500 Portfolio (pegged to the Standard & Poor’s 500 index) and a 9.9 percent rise in the T. Rowe Price U.S. Treasury Long-Term Fund.

The portfolio, which was first valued at $25,299.85 on Oct. 23, was valued at $29,379.42 percent after the market closed Tuesday.

The performance of the various holdings in the portfolio does raise some questions for the mythical investor who holds them. Is it time to dump the laggard Pacific Growth Fund? Should more money be put into bonds, which are doing better lately?

There is no one answer to that question, because each investor’s circumstances must be factored in. A 30-year-old investor who is using the portfolio as a retirement account might be better off to let things be, and see if the Pacific Rim economies recover over the years.

But investors whose 17-year-old sons and daughters are heading off to college next year might decide it’s time to cut their losses, and to seek the relative safety of Treasurys.

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