Mutual Fund Selection Made Simple By Indexing!

Non-indexed mutual funds try to keep it secret that actively managed mutual very funds rarely do better stock market indexes. The higher fees of the managed funds really make it hard for these funds to out compete indexed funds. Smart financial journalists occasionally rat out fund managers for not educating the public in this regard. When this happens the mutual fund managers make a feeble attempt at self defense by pointing to something called the 5% rule.

This rule says that for a fund to market itself as diversified it cannot have more than 5% of 75% of the funds total assets in a single stock. In other words, a fund can have 25% of its holdings in a single stock, but the remaining 75% must follow the 5% rule. The 5% rule was created by the Investment Company Act Requirement. Fund managers claim that this hampers their performance instead of admitting that they are in the business just to clip you for high fees while the mutual fund under-performs the general market.

The truth is that the big killer is the herd mentality of active fund managers. They follow each other around buying and selling the same junk. They flock to the same familiar companies and often overlook the new, obscure companies that show great promise. They take great comfort in knowing that, even if their fund misses out on a great opportunity, most of the others in its group will too. They also know that they can pull their huge fees out during the whole time your retirement savings are parked in their fund. Over the years they spend a lot of marketing money to make you think that they actually care.

That is certainly not the attitude I want the manager of my retirement to have! You should be asking your self why the mutual funds don't just mimic the same portfolio stock composition as a major index like the S&P 500 stock market index. Well, some have and those that are indexed out perform actively managed funds at the minimum management cost. For this reason I strongly recommend that if you can only buy mutual funds as in the case of the 401(k) then restrict your purchases to indexed funds like the Vanguard 500 (VFINX).

ABOUT THE AUTHOR: Dr. Scott Brown, Ph.D., a.k.a. "The Wallet Doctor", is a successful futures trader, real estate investor, and stock investor. Dr. Brown holds a Ph.D. in finance from the University of South Carolina. His 1998 articles in Technical Analysis of Stocks and Commodities were prophetic in predicting an impending stock market crash. He has helped many people become profitable investors by teaching them to look out over many years to spot stocks that are low and primed for rise in the new bull market. His second article met with approval by Dr. Bob Shiller of Yale University. Dr. Shiller is the economist that Alan Greenspan most highly regards who coined the term "Irrational Exuberance." In 1998 he shouted to the world to "get out" of the stock market but now he is shouting to everyone that it is time to "get in!" The Wallet Doctor is not only sought after for investment advice and coaching in stock investing but also in futures trading and real estate investing. Visit Dr. Brown's site at http://www.BonanzaBase.com or sign up for his investment tips at http://www.WalletDoctor.com

Investing in stocks: Is it time to get back into the market?
Independent, UK - 12 hours ago
James Smith, the chief investment officer of specialist funds at Resolution Asset Management, believes that equities are up to 30 per cent undervalued in ...

When investing comes down to a toss of the coin
Globe and Mail, Canada - 4 hours ago
Here's a harder, more provocative one that ultimately can teach us a lesson about investing: Understanding the career of Sherry Lansing, who ran Paramount's ...

Investing in the next generation
Scotsman, United Kingdom - 12 hours ago
For the eldest child he uses the Witan Jump savings plan, based on Witan's multi-manager investment trust. For the others he invests in child savings plans ...
Giving your child a financial jump-start Scotsman
all 5 news articles

Saturday Interview Investing in Longevity and Security
New York Times, United States - 8 hours ago
By MICKEY MEECE ON Monday, Theodore A. Mathas left his old office at one end of the 13th floor of the New York Life Building to move into the corner office ...

Exchange traded funds change investing
Vancouver Sun,  Canada - Jul 4, 2008
Mawer's World Investment fund has been named Canada's top international fund four of the past six years, and fund manager Gerald Cooper-Key was named 2007 ...

BiggerPockets a forum for real estate investing
Chicago Tribune, United States - Jul 4, 2008
The special-interest media and publishing company offers free tools and resources on real estate investing throughout the country, educating and uniting the ...

Investing for Retirement - Cramer's Mad Money (7/3/08)
Seeking Alpha, NY - Jul 4, 2008
While many people who are investing for retirement tend to be risk averse, Cramer thinks one can go out on a limb once in a while; he reminded viewers it ...

The 10 Commandments Of Muni-Bond Investing
Forbes, NY - Jul 3, 2008
Simply read and follow the new 10 Commandments of Municipal Bond Investing and thou shalt have the where-with-all to survive the credit crisis. ...

BBC News
The Five Secrets to Succeed at Bear Market Investing
Money Morning - Jul 2, 2008
But here’s the ultimate irony: Bear-market investing offers a direct pathway to the biggest profit opportunities most investors will ever see. ...
Investing in Commodities: Diversification or Hedging? Seeking Alpha
Investing Strategies for Today's Bear Market Smartmoney.com
Future secure for cap-weighted indices Global Pensions
istockAnalyst.com - Globe and Mailall 306 news articles

The Investing Mistake That Could Destroy Your Retirement
Motley Fool - Jul 3, 2008
You direct your contributions into the asset class or investment style that suits your needs -- large-caps, growth stocks, small-cap value stocks, ...
Get These Stocks Out Of Your IRA! Motley Fool
all 2 news articles

Wind Chimes and more...

Windchimes for great gifts!

The Truth About Real Estate Investing - Is It Right For You?