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

---

Use this Simple Trick its to Buy $100 Bills Direct from your Bank for only $97

Most People just don't understand the power of using their... Read More

Get Wealthy With the Rule of 72

When it comes time to retire how many people would... Read More

Chile Leads the Latin Pack

Everyone's talking about China. Don't miss the opportunities in the... Read More

Seven Investment Terms Everyone Should Know

For those who have never given their financial future a... Read More

Retirement Plan Considerations Cheat Sheet for Small Business

RETIREMENT PLAN CONSIDERATIONS are something every small business person needs... Read More

The Power of Small Numbers: Trading Success is Based on Consistency, Not Home Runs

Online trading is so seductive - just sit, click, and... Read More

Consolidation Period

The economic data reported Fri showed continued above trend growth... Read More

Delist My Corporation Please

It use to be said that once a company was... Read More

Eight Questions to Ask Your Financial Advisor

You may like your financial advisor, but is he really... Read More

Global Markets: A Window on the World Economy

Expectations drive the market. Every stock price is driven by... Read More

Stock Market Money Management Skills

Let's start by saying: You can't be afraid to take... Read More

Powerful Options Basics Lessons Improving your trading in 180 days.

An option is a traded security that is a derivative... Read More

Creating Momentum with Options - Pro and Cons of At-the-money, In-the-money, and Out-of-the-money

To create momentum in your options trading you need to... Read More

Selecting Rules for Investing and Trading

There are three important differences between investing and trading. Overlooking... Read More

Wit and Wisdom on Money, Wall Street and Success - Part #2

Here are ten more WISDOM packed GEMS that ooffer very... Read More

The Past Does Not Equal The Future: Mutual Fund Returns!

A way that investors get ripped off and in a... Read More

5 Things To Know About The Stock Market

50% Of U.S. Households Invest In The Stock Market Individuals... Read More

Chinas Inscrutable Currency Strategy

Purpose: Expose Opportunities for Smart InvestorsThe move by China's central... Read More

How to Calculate the Value of Your U.S. Savings Bonds

If you're like many Americans over the age of 55,... Read More

Planning Starts with the Basics

When developing a plan for your finances, the toughest question... Read More

It Is Never Too Early To Start A Roth IRA!

The Roth is kind of weird until you get used... Read More

Finding False Gold in Penny Stock

As far as traders go, many do not see the... Read More

Investing and Asset Allocation

Sometimes you spend sleepless nights worrying about which stocks to... Read More

Guru Focused: Robert Olstein?s Short Sells

While it is rather rare that value gurus sell stocks... Read More

Introduction To FOREX

The Foreign Exchange Market, better known as FOREX, is a... Read More

Angel Investors: Who They Are & When Are They Appropriate

Angel investors are individuals who invest in emerging business ventures.... Read More

Raising Capital in Today?s ?New Economy?

We've helped a number of clients develop business plans and... Read More

Invest or be Pink Slipped

Firing an employee seems to be easier and easier for... Read More

Keep Stock Market Investment Profits

Have you had one of those huge investment winners ?... Read More

Dont Catch a Falling Knife

One of the most common mistakes made by inexperienced investors... Read More

Value Investing

By definition, value investing is the process of selecting stocks... Read More

Should You Put Your Annuity in an IRA?

Let me start by answering that question...if an annuity fits... Read More

Buying a Home - Your BIGGEST Investment

This column has often focused on intangible investments like stocks... Read More