Question: 
I am 26 years old and just started investing. I have sent the paperwork for a Roth IRA in the Janus Enterprise fund. For a non-IRA account I selected Janus Mercury, and I’m also considering adding Janus Growth & Income. For somebody looking for long-term growth, is this a solid start?

Answer:
At age 26, any start is a good start. You have lots of time ahead of you, and if you use that time well you will gain valuable experience and ample opportunity to let your money grow.

Each of the funds you have chosen is a good fund. But your choices will give you a weak start instead of a strong start. An analogy might be nutrition. Three good vegetables don't make a balanced diet. And three Janus growth funds do not make a properly diversified portfolio.

I think you are making what we call Investing Mistake No. 3, taking too much risk. You're taking risk by concentrating only on large and medium-size U.S. growth stocks, ignoring most of the equity investments that are available to you.

I don't know how much money you have, but if you have enough to meet the minimum requirements for those three funds, you have enough to get a lot more diversification.

You should build a balanced portfolio by having some value stocks in addition to growth stocks, some international stocks in addition to U.S. stocks and some small-cap stocks in addition to large-cap ones. Janus is an excellent mutual fund family, its funds tend to own many of the same stocks. This means you sometimes get less diversification than you think you are getting. Let's see if this is true of the funds you chose.

Janus Enterprise is a mid-cap growth fund with a heavy emphasis, 43 percent, in technology. Janus Mercury is a large-cap growth fund with 47 percent of its portfolio in technology. Janus Growth & Income is a large-cap growth fund with 39 percent of its portfolio in technology. Each of those numbers are significantly overweighted, by the way. Technology makes up 27 percent of the Standard & Poor's 500 Index.

Even though these funds own different technology stocks from one another, that combination will give you much too much technology. Think of a boat with almost all the passengers standing on one side, and you will get the idea. The view may be temporarily wonderful from that side of the boat, but the boat is unbalanced.

If you have already committed to Enterprise and Mercury and want some real diversification from a third fund, invest in an international fund like Fidelity Diversified International or TIAA-CREF International Growth. Your next step toward diversification should be a value fund, and I'd suggest you consider the Vanguard Value Index or Selected American Shares. Your next stop should be a small-cap fund such as Vanguard Small-Cap Index or Schwab Small-Cap Index.

You can build diversification into your portfolio gradually as you acquire more money, but the sooner you do it, the better. A discovered this the hard way this year. Last winter, many investors eager for big gains threw caution to the winds and over-committed to aggressive growth funds like Janus Global Technology. That fund was up 211 percent in 1999, and a lot of inexperienced investors concluded that they had found a sure thing. But by Thanksgiving, that fund was down about 24 percent this year. If Janus Global Technology represented 10 percent of your portfolio, you could roll with the punches. But if it were half or more of your portfolio, you would be feeling considerable pain by now.

Even though you probably have what seems like a small amount of money, you can learn to treat yourself like a millionaire. Millionaires invest intelligently, after learning the facts. They don't make impulsive decisions and they don't let greed blind them to reality. They also place a high value on keeping the money they have.

So if you want to get a really strong start, take a long-term view of things and build a diversified portfolio. I suggest you visit our Web site and read "The Best Buy and Hold Portfolio We Know" which you will find in the archives of our newsletter library. For more specific fund recommendations, check out the Model Portfolios on our Web site.