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4 Funds I Would Like to See Under My Christmas Tree

You shouldn't have.

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The car commercials showing people giving each other new cars for Christmas really bug me. Why would you make such a big decision without consulting your spouse? It's really foolish. Especially if you are taking on a pile of debt to do it.

A better if more boring idea would be a nice mutual fund, though even a significant expenditure like that should be done with your spouse, in my view.

I thought about four funds I would want to get for Christmas. It wasn't easy because by now I pretty much have all the bases covered. So, I thought of three niche funds and one core fund I don't have that would help to round out my portfolio.

At some point, additional funds are giving you additional work and complexity, so it's hard to know exactly when to stop. I'm not sure I'll actually add any of these funds, but they could still provide some diversification.

Getting older means boosting your bond weighting. I've only done it in a modest way so far, but there are some bond types I could use more exposure to. Therefore, three of my four picks are bond funds, and the fourth is an allocation fund with some bonds.

 Eaton Vance Floating Rate (EVBLX)
Protection against rising rates isn't a big issue for younger investors, but it is for older investors with more in bonds. That's why a bank-loan fund like this one has appeal. Bank loans adjust based on changes in interest rates, and that means you generally won't lose money when interest rates rise the way you would with most bond funds.

On the downside, bank loans are less liquid than most bonds and tend to be lower-quality, though some are investment-grade. The typical bank-loan fund lost 30% in 2008, so that downside is real.

The appeal here is that Eaton Vance has a seasoned team of specialists in the field who have built a strong record. Scott Page was a bank-loan analyst at Eaton Vance starting in 1989, and Craig Russ joined the firm in 1997. Finally, I'll point out that the fund is available without a load on No Transaction Fee supermarkets.

 T. Rowe Price Tax-Free High Yield (PRFHX)
I've got a muni fund, but I don't have one plying the higher-risk, higher-yield side of things. T. Rowe Price has natural appeal, as I want a sober, conservative approach to taking on added risk. Jim Murphy has run this fund since 2001, and he has guided it to strong returns without any big problems. He's avoided messes like Puerto Rico and instead favors healthcare and corporate munis. The fund, which has a Morningstar Analyst Rating of Gold, tends to lose less in sell-offs.

 Fidelity New Markets Income (FNMIX)
Emerging markets are another part of the bond market that has potentially higher returns and relatively low correlation with the broad market. This Silver-rated fund's three-year R-squared with the Bloomberg Barclays U.S. Aggregate Bond Index is just 30. John Carlson is an experienced manager leading a solid team. A fund that buys debt from countries like Venezuela and Russia is naturally pretty risky. That's why I would probably limit it to 2% or 3% of my portfolio. It adds diversification, but it's clearly not a core fund.

 American Funds Capital Income Builder (CIBFX)
And now to take things full circle, a fund that could very well be a core holding. This gem covers the globe and owns both stocks and bonds. You could do worse than have a low-cost fund with skilled managers who can pick securities of just about any type.

The goal is to provide a rising income stream and solid returns in a portfolio with a baseline allocation of 70% equities and 30% fixed income. That income orientation gives the fund a value tilt, and that's not a bad thing at the moment given that the left side of the Morningstar Style Box has been out of favor. More importantly, Capital Group's global-equity team does a fine job of stock research, and it shows in this fund and across the lineup.

This fund's F-1 shares are available on NTF supermarkets.

Happy Holidays!

Russel Kinnel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.