Page 528 - How to Make Money in Stocks Trilogy

How You Could Make Your Million Owning Mutual Funds 397

history, growth funds did bounce back, and they did so in less time than
you’d expect. In other words, if you took the absolutely worst period of the
twentieth century, the Great Depression, and you bought at the top of the
market, then dollar cost averaged down, at worst, it would have taken you
seven years to break even, and over the following 21 years, you would have
seen your investment increase approximately eight times. This is compelling
evidence that dollar cost averaging into mutual funds and holding them for
the long haul could be smart investing.
Some people may find this confusing, since we have said that investors
should never dollar cost average down in stocks. The difference is that a
stock can go to zero, while a domestic, widely diversified, professionally
managed mutual fund will find its way back when the market eventually gets
better, often tracking near the performance of benchmarks like the S&P 500
and the Dow Jones Industrial Average.
The super-big gains from mutual funds come from compounding over a
span of many years. Funds should be an investment for as long as you live.
They say diamonds are forever. Well, so are your funds. So buy right and
sit tight!

Should You Buy Open- or Closed-End Funds?
“Open-end” funds continually issue new shares when people want to buy
them, and they are the most common type. Shares are normally redeemable
at net asset value whenever the present holders wish to sell.
A “closed-end” fund issues a fixed number of shares. Generally, these
shares are not redeemable at the shareholder’s option. Redemption takes
place through secondary market transactions. Most closed-end fund shares
are listed for trading on exchanges.
Better long-term opportunities are found in open-end funds. Closed-end
funds are subject to the whims and discounts below book value of the auc-
tion marketplace.

Should You Buy Load or No-Load Funds?
The fund you choose can be a “load” fund, where a sales commission is
charged, or a “no-load” fund. Many people prefer no-loads. If you buy a
fund with a sales charge, discounts are offered based on the amount you
invest. Some funds have back-end loads (sales commissions that are charged
when withdrawals are made, designed to discourage withdrawals) that you
may also want to take into consideration when evaluating a fund for pur-
chase. In any event, the commission on a fund is much less than the markup