Page 527 - How to Make Money in Stocks Trilogy

396 INVESTING LIKE A PROFESSIONAL

Century, and others, offer funds with varied objectives. In most cases, you
have the right to switch to any other fund in the family at a nominal transfer
fee. These families offer you added flexibility of making prudent changes
years later if you want an income or balanced fund.

Are Monthly Investment Plans for You?

Programs that automatically withhold money from your paycheck are usu-
ally sound if you deposit that money in a carefully selected, diversified
domestic growth-stock fund. However, it’s best to also make a larger initial
purchase that will get you on the road to serious compounding all that much
quicker.

Don’t Let the Market Diminish Your Long-Term Resolve
Bear markets can last from six months to, in some rare cases, two or three
years. If you’re going to be a successful long-term investor in mutual funds,
you’ll need the courage and perspective to live through many discouraging
bear markets. Have the vision to build yourself a great long-term growth
program, and stick to it. Each time the economy goes into a recession, and
the newspapers and TV are saying how terrible things are, consider adding
to your fund when it’s 30% or more off its peak. You might go so far as to
borrow a little money to buy more if you feel a bear market has ended. If
you’re patient, the price should be up nicely in two or three years.
Growth funds that invest in more aggressive stocks should go up more
than the general market in bull phases, but they will also decline more in
bear markets. Don’t be alarmed. Instead, try to look ahead several years.
Daylight follows darkness.
You might think that buying mutual funds during periods like the Great
Depression would be a bad idea because it would take you 30 years to break
even. However, on an inflation-adjusted basis, had investors bought at the
exact top of 1929, they would have broken even in just 14 years, based on
the performance of the S&P 500 and the DJIA. Had these investors bought
at the top of the market in 1973, they would have broken even in just 11
years. If, in addition, they had dollar cost averaged throughout these bad
periods (meaning they had purchased additional shares as the price went
down, lowering their overall cost per share), they would have broken even
in half the time.
The 1973 drop in the Nasdaq from the peak of 137 would have been
recovered in 3½ years, and as of February 2009, the Nasdaq average had
recovered from 137 to 1,300. Even during the two worst market periods in