Page 529 - How to Make Money in Stocks Trilogy

398 INVESTING LIKE A PROFESSIONAL

you pay to buy insurance, a new car, a suit of clothes, or your groceries. You
may also be able to sign a letter of intent to purchase a specified amount of
the fund, which may allow a lower sales charge to apply to any future pur-
chases made over the following 13 months.
Few people have been successful in trading no-load growth funds aggres-
sively on a timing basis, using moving average lines and services that spe-
cialize in fund switching. Most investors shouldn’t try to trade no-load funds
because it’s easy to make mistakes in the timing of buy and sell points.
Again, get aboard a mutual fund for the long term.

Should You Buy Income Funds?

If you need income, you may find it more advantageous not to buy an
income fund. Instead, you should select the best fund available and set up
a withdrawal plan equal to 1½% per quarter, or 6% per year. Part of the
withdrawal will come from dividend income received and part from your
capital. If you selected the fund correctly, it should generate enough
growth over the years to more than offset annual withdrawals of 6% of your
total investment.

Should You Buy Sector or Index Funds?

Steer away from funds that concentrate in only one industry or area. The
problem with these funds is that sectors go into and out of favor all the time.
Therefore, if you buy a sector fund, you will probably suffer severe losses
when that sector is out of favor or a bear market hits, unless you decide to
sell it if and when you have a worthwhile gain. Most investors don’t sell and
could end up losing money, which is why I recommend not purchasing sec-
tor funds. If you’re going to make a million in mutual funds, your fund’s
investments should be diversified for the long term. Sector funds are gener-
ally not a long-term investment.
If you are conservative, it may be OK for you to pick an index fund, where
the fund’s portfolio closely matches that of a given index, like the S&P 500.
Index funds have outperformed many actively managed funds over the long
run. I tend to prefer growth funds.

Should You Buy Bond or Balanced Funds?

I also don’t think most people should invest in bond or balanced funds.
Stock funds generally outperform bond funds, and when you combine the
two, you’re ultimately just watering down your results. However, someone