Wealth creation.

Ohio couple rev up portfolio with asset mix

Working in the automotive industry might tempt some people to own brand-new cars, but Larry and Willa Smith of Dayton, Ohio, own older models. That is one sacrifice the double-income couple make in order to minimize their monthly expenses and have more discretionary funds to invest for retirement, according to Larry, 43, a skilled tradesman for General Motors in Moraine, Ohio, since 1992. With parents from the Depression era, he and his wife were timid about investing in the stock market outside of their 401(k) plans.

Since the Smiths have no children, they invest the maximum allowable amount annually to their 401(k) plans--Larry 18% and Willa 15%--and own GM (NYSE: GM) and Delphi Automotive Systems (NYSE: DPH) common stock, while gaining steady long-term growth via the Fidelity family of funds. However, their quest for even greater financial security convinced them to take a gamble in 1998 and add more mutual funds and individual stocks to their ultra-conservative array of savings accounts, CDs, and U.S. savings bonds.

"I was pretty much ignorant of how the stock market worked and wasn't real comfortable with taking risk," says Willa, 39, an independent business consultant.

They used $5,000 in savings to initially purchase shares of the Aim Value fund (Nasdaq: AVLFX) and the Franklin Ohio Tax-Free Insured fund (Nasdaq: FTOIX), which they still own, and later picked up stock in The Walt Disney Co. (NYSE: DIS), and their local utility company, DPL Inc. (NYSE: DPL). The couple allocates 20% of their six-figure net income to a money market account used for investing, and have since added the Franklin Small Cap World fund (Nasdaq: SMCWX), and individual stocks, such as Wal-Mart Stores Inc. (NYSE: WMT), Pepsico Inc. (NYSE: PEP), and Procter & Gamble Co. (NYSE: PG) to their lineup.

"You want to invest enough to make a difference in your account, but at the same time you don't want to put all your eggs in one basket," Willa says. Their other investments include Willa's IRAs, and an annuity that Larry, a former self-employed electrician, holds through the International Brotherhood of Electrical Workers' union. Over the past three to five years, the annuity has grown from $10,000 to $42,500.

While the gyrations in the equity market earlier this year produced a few negative returns on their monthly statements (their portfolio takes a long-term approach to investing), the couple has learned to weather the stormy days. "The market decline has eaten away at the growth in their portfolio, but they understand that it's krug term and it will go up and go down," says their broker, Linda Melvin, a financial consultant at NatCity Investments Inc. in Dayton, Ohio.

Investing in companies that provide stability and growth keeps their portfolio well diversified, and sheltering a significant portion of their incomes in their 401(k)s helps minimize their taxes--two winning strategies that Melvin recommends for other investors like the Smiths.