Buy high and sell low — It’s not a typo.

Millions of investors guarantee their failure by selecting mutual funds and stocks based on quarterly or annual performance records. Do you chase performance? You might be buying high and selling low!

As the year draws to a close, millions of mutual fund investors begin an annual event to divine next year’s winners. Yet most of these individuals rely heavily on a time-honored – but terribly wrong – method of evaluating strength. Whether analyzing screening tools from websites, reviewing fund honor rolls in magazines, or using star ratings from fund analysts, normally savvy business people foolishly chase the returns of last year’s hottest investments.

This begs the question: Can top performing mutual funds lead two years in a row? Consider a study commissioned by Vanguard Investments Australia and released by Morningstar. The five best performing funds were analyzed from 1994 to 2003. Here are the results:

– Only 16% of top five funds make it to the following year’s list.

– Top five funds average 15% lower returns the following year.

– Top five funds barely beat (by 0.3%) the market the following year.

– 21% of all top five funds ceased to exist within the following 10 years.

Academic studies and market statistics confirm the typical investor acts in direct opposition to the sage advice – buy low, sell high. It’s only after high returns are realized and reported that investors pour money into both stock and bond mutual funds. In fact, Financial Research Corporation compared investor cash flows into mutual funds. Purchases immediately following best-performing quarters exceed 14 times those immediately following their worst-performing quarters. In other words, you are 14 times more likely to buy funds at their highest price than at it’s lowest. Buy high and sell low.

Just what kind of damage are they inflicting to their investment returns? DALBAR, Inc., conducted a well-known study called Quantitative Analysis of Investor Behavior. The study confirms investors’ poor timing and the resulting financial carnage. Investors buy funds immediately after a rapid price appreciation. This just happens to be right before investment performance wanes. Prices fall soon after and the investors quickly dump their holdings to search for the next hot fund. The resulting returns fail to even beat inflation! When measured over the last nineteen years, the average equity investor earned a meager 2.6% annual return. Compare that to a 3.1% inflation rate and a 12.2% return from the S&P 500 over the exact same time period. Not only did investors fail to keep up with the market, they also lost money to inflation.

We’ve all seen the warnings on packages of cigarettes. Even smokers understand their relevance; smoking is not a healthy activity. So why do investors not heed warnings about mutual fund returns? You’ve all seen those statements too. But can you remember what is said? Past performance is not a guarantee or indicator of future results. Research and studies have proven this fact, yet the majority of investors choose to ignore this warning. Yes, it’s an easy means of comparing funds. It also happens to be completely irrelevant. Let me evangelize these words for you. Past performance does not predict future results!

Here’s how you can stop chasing short term performance and stay focused on your financial goals. Identify appropriate long-term investments by evaluating the following:
(1) Leadership: How does the fund perform relative to similar size and similar style funds?
(2) Tenure: How long have the managers and advisors been at the fund?
(3) Management: Managers well-known, highly-regarded (e.g. remember Peter Lynch)?
(4) Consistency: Are the 3, 5, and 10 year returns all above average?

Finally, measure returns based on your entire portfolio. History shows that no single investment success repeats. Accept the fact every year is different and brings new leaders and laggards. Use an asset allocation strategy to guarantee balance and increase long term returns among all your investments. Invest in a diversified portfolio to meet your financial goals — and stick with it.

Not yet learned your lesson? Consider this: Fourteen mutual funds topped the 2003 charts with returns over 100%. In 2004, these fourteen funds lost over 4% while the S&P 500 gained 3%. Congratulations, chasing performance lost 7% of your money this year.

Tim Olson

TheAssetAdvisor.com
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Mr. Olson is the editor of The Asset Advisor, a financial investment service providing proven strategies for no-load mutual fund investors. He brings 26 years of education and experience from Stanford University, Ernst & Young financial consulting, personal wealth management, and venture capital investing.

With over 6,000 mutual funds available, it may be tempting to pick funds from a popular star or index rating system. Savvy investors, however, balance multiple factors in their selection process. Ratings represent only the historical performance of funds and cannot predict the future. Performance consistency, management skill, and expense limitations are among the many factors that influence a fund’s prospects. Each must be carefully evaluated to improve your chances of finding a fund to outperform the market.

Create a plan
Define your financial goals. Are you saving for retirement? Putting money aside for a home? Funding a child’s college education? Your answer will have significant implications on your choice of mutual funds. More time gives you flexibility to use an aggressive approach. Immediate needs call for safety and capital preservation. Take careful consideration of your tolerance for risk. If the market dips, at what point would you lose sleep? Is it a 5% drop? 10% drop? An asset allocation plan will balance your portfolio and maximize return for your level of acceptable risk.

Dismiss recent results
Past performance is no indicator of future results. No truer words could ever be spoken and they are included in every mutual fund advertisement. But it’s extremely difficult to ignore these numbers which the fund companies conveniently place in big bold letters – immediately above the fine print warning us. Nothing is more attractive than a fund with a great record, especially given the dismal performance in the market.

Past performance can provide a good starting point, but nothing more. In fact, past performance predicts losers better than the winners. A 1998 study from fund-tracking firm Morningstar, demonstrated the top fund performers rarely hold their spot on the charts. The study also concludes bottom performers rarely did anything but continue to sink. Never assume the past will repeat itself, yet, ignore a fund’s historical record at your own peril. Avoid the perennial losers.

Seek consistency
Evaluate a mutual fund’s performance beyond just the recent year. Any fund can get lucky, but it’s the rare firm that prove themselves year after year. Examining a fund’s long term performance can answer the question of consistency. If the performance was good, was it repeatable due to skill – or merely a spike due to dumb luck?

Watch for a solid record of returns, rather than funds showing spurts of great years followed by fits of lousy ones. Compare the fund’s returns to a relevant benchmark index, (large-cap vs. S&P 500, small-cap to the Russell Index, etc.) Solid funds should not only consistently beat the benchmarks, they should also beat their peers.

Seek good managers
Always review the experience and performance of the fund’s managers. When you buy a mutual fund, you are actually investing in the experience, skill, and savvy that the manager brings to the table. When the manager leaves, the fund performance generally goes with him. How many years has the manager been leading the fund? The longer (if generating strong results), the better. And keep an eye out for the gurus. The industry’s better managers are well-respected, high-regarded, and often quoted in the press. You’ll find multiple articles and even manager profiles published in the popular financial magazines and newspapers.

Think cheap
Check out the fund’s cost of ownership. While you can not predict a fund’s performance, you can control the ongoing expenses. Since expenses impact your ability to grow investments over time, select a fund with low costs. Check the expense ratio, sales fees, trading costs, and 12b-1 fees charged to cover the marketing, distribution and sales. Everything counts against your bottom line – keep it small as possible. When possible, choose funds with expenses less than their category average.

Taxes are often overlooked and can substantially reduce your after-tax gain unless investing within a tax-deferred, retirement account. Avoid funds with large distributions (capital gain payments) by searching for funds with low turnover. Since buying and selling stock incurs transaction costs, lower turnover translates to lower expenses and lower capital gains’ taxes. Fund managers who seek to boost returns through repeatedly buying and selling securities are no friend of yours.

Putting it all together
Picking mutual funds is a challenging task. You will need to spend time learning, researching, investigating, analyzing, and comparing. The key is to develop your own methodology using some of the components listed here along with your own judgment and decision capabilities. Review your investment plan and fund selection criteria at least once a year. Make sure the plan still matches your goals and the funds match your expectations.

It’s your money. It’s your future. Take your time. Get it right.

Tim Olson

TheAssetAdvisor.com

Mr. Olson is the editor of The Asset Advisor, a financial investment service providing proven strategies for no-load mutual fund investors. He brings 26 years of education and experience from Stanford University, Ernst & Young financial consulting, personal wealth management, and venture capital investing.

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Everyone who follows the financial news has heard of mutual funds and knows the stock market has generally risen (with various ups-and-downs) for over 200 years. In fact, by most measures, the stock market has made more money for more people, and done it more reliably, than any other investment over the past 100 years! If you want to accumulate substantial wealth, you must include stocks in your investments!

But, most people who “invest” don’t study the market. They don’t understand it, and they don’t have time to manage their portfolio wisely. That’s where mutual funds come in. I respect that other people have other opinions, and certainly not all mutual funds are well managed – you MUST choose wisely and use appropriate caution! But, for most folks, a good, solid, boring mutual fund is the golden path to riches.

Here are my Top 10 reasons to us mutual funds:

1. Selection. You can select from thousands of funds (you’ll find one to suit your needs) and you can get information on them easily. Magazines like “Money” are easy to find. Most credit unions have information, and your local library is a goldmine – and there’s the Internet.

2. You Can Start Small. Most mutual funds will let you start with less than $1000, and if you set it up for automatic deposits, some will let you start with only $50. I’ve spent more than that in a restaurant! There is NO reason not to consider this!

3. Simplicity. You deposit 10% of your income every month. Just pay yourself first, then pay the mortgage, then pay everyone else.

4. Professional management. I don’t always have time to research, select, and monitor individual stocks. So, I pay a professional a small fee to do it for me. A good fund manager will make you rich!

5. Compound interest. Depending on what index you pick, the U.S. stock market has gone up an average of over 12% per year for the past 10 years, and it’s been almost that high for the past 20 years. The market fluxuates, but the beauty of this is, you don’t care! Over 10, 20, or 30 years, the system works every time!

6. Dollar-cost-averaging. The details are complicated, but by investing every single month, whether the market is up or down, you get a tremendous boost from the mathematics. Your “average cost” will always be less than the “average price” you paid! And that is money in your pocket!

7. Diversification. A broad-based growth fund typically invests in dozens of companies in different industries, sometimes even in different countries around the world. If one stock goes down, hopefully dozens of others will go up. There is excellent protection and sound risk management built-in to these funds.

8. Specialization. If you prefer, and if you do the research, there are funds that invest in only a very small number of companies. If you can accept the additional risk, you can invest in one particular industry, or one country, or in companies of a certain size or that are environmentally responsible. This specialization offers the potential for even greater profits, but it can also bring greater potential risk. Study before you invest!

9. Fund “Families”. Most mutual funds are offered by management companies that sponsor several different funds, with different objectives. They make it easy to move your money between funds, so as your goals change, you can adjust your investements with a quick phone call, or on the Internet.

10. Momentum. Once you get started, your enthusiam builds. Once you have money “in the market”, you’ll track it, manage it, and in all probability, your desire to save will increase. If you’ve had difficulty saving in the past…START! Those monthly statements will be positive reminders to do even more. Yes, you should invest in tax-sheltered retirement plans first, and yes, there are other investment possibilities. And yes, there is some risk, because the market can go down. But to retire wealthy, pick a great, long-term growth fund, invest regularly, and let the system work for you! The key, as always is: GET STARTED!

Here’s to your success!

© Copyright 2003 by Philip E. Humbert. All Rights Reserved. This article may be copied and used in your own newsletter or on your website as long as you include the following information: "Written by Dr. Philip E. Humbert, writer, speaker and success coach. Dr. Humbert has over 300 free articles, tools and resources for your success, including a great newsletter! It’s all on his website at: http://www.philiphumbert.com

For years investors have been taught to look into the composition of a mutual funds. In other words the "experts" want you to take the time to analyze the stocks within the mutual fund portfolio, categorize them by industry group and try to understand the objective of the fund manager. This is nonsense.

When I go the track I look to see what the horse has been doing for the last several races. I don’t give a hoot what he had for breakfast. All I want to know is has he been fast? Is there a good chance he will finish in the money in the next race? I only want to know how he has been performing.

Most mutual fund managers, except those who follow index funds, are always trading. You have no idea that what is in the portfolio today was there yesterday or will be tomorrow. Some fund managers trade more than others, but you can prove this to yourself by looking at the fund prospectus at the beginning of the year and one of the updates that funds publish quarterly. Many of the stocks will still be there, however, you don’t know if the percentage holdings are the same.

By the way, don’t bother reading a mutual fund prospectus. They are worthless when it comes to making money. Consider that most of the information in it is about a year old by the time you read it. Think about this seriously for a minute. Is there anything you can find out in the document that will show up in your bottom line? I’ll wait while you think. OK? There really wasn’t anything was there? All prospectuses are basically worthless.

But you say the SEC (Securities and Exchange Commission) in Washington approved this. No, they did NOT. They don’t approve of anything; they just read it to be sure it meets the regulatory requirements for disclosure. There is almost no difference between the prospectus for the worst mutual fund and the best mutual fund and both of them may have been read by the same Dilbert in his cubicle at the SEC.

There is one excellent way to find out which fund to buy. It is based on performance. How much has the fund increased in price during the past 12 months? Just 12 months. Many financial analysts want you to look at 3-year, 5-year and 10-year performance. Remember that horse? I don’t care how many races he won 3 or 5 years ago. Can he run NOW? There are many publications and web sites that tell you the best performers. Investor’s Business Daily prints a list of best performing funds each day. You might have to see the paper every day as they sometimes just tell about the long-term performance. You want the last 12 months and the last 3 months.

Three years ago you could have bought the best performing fund on the street and today have a dog. I call a dog any mutual fund that is not outperforming the S&P500 index.

If you were a jockey you would want to ride the fastest horses because in many races you get a percentage of the purse. The same applies to mutual funds. You must own only the best performing funds at all times. Like the jockey you must pick the fastest horse if you want to be a winner.

You should review your fund holdings monthly to see that you are only in the best funds. It might take you an hour, but you will find that you will double the current return on your mutual fund investments. Do it!

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

If you are a baby boomer, time is not on your side. Many baby boomers see retirement age fast approaching with little to nothing in the way of retirement assets that will allow them to actually retire and live a comfortable lifestyle.

With the benefit of time in short supply, substantial investment performance in a shorter than normal time frame becomes strikingly important.

Mutual Fund Advice

A case could be made that a special type of mututal fund, an index mutual fund, in conjunction with careful market trend analysis (not predictive market timing) could be used to achieve higher returns faster than a standard mutual fund.

As to the specific type of index fund to consider using, investors would do well to "keep it simple" and use an index fund that tracks well known indexes like the S&P 500, Nasdaq100, and Wilshire 2000.

Index funds that track any of the major indexes are just taking advantage of the concept of diversification. The only remaining risk is whether the entire market goes up or goes down and one can switch to a fund that is designed to profit from a down market when such action is called for.

There are very few active investment managers that outperform index funds or exchange traded funds over a five year or greater period. This is why an index fund is recommended in the case of baby boomer-aged investors who need stellar performance over shorter time frames.

Mutual Fund Selection

Mutual Fund Action plan

Mutual Fund Research

Mutual Fund Investment tools

—

C.C. Collins is a Financial Planning Advisor and Author of “Scientific Wealth Strategies” at http://wealthscientist.com. Find more information at http://www.mutualfundinfo4u.com

How many times has this happened to you? You’re at a social function and the conversation turns to investing. Pretty soon, people are comparing how well their investments are doing. As you might imagine, being an investment advisor this happens to me a lot. However, I recently had an experience with it that startled me.

Bob, one of the guys I was chatting with at a party, asked what kind of returns I had made for my clients with my methodical no load mutual fund strategy during the past year. I replied that they had unrealized gains of slightly over 29%, after management fees, for the 8 months that we were invested.

Bob countered with a smirk that he had made a 40% return. I raised my eyebrows and told him that was darn good—and suggested that maybe he ought to be managing my money. At that point we were interrupted and, as the evening went on, I began to wonder exactly how Bob had gotten his great return.

I cornered him a little later on and, upon digging a little deeper, the story looked somewhat different. Yes, he had made a 40% return on a mutual fund he had some money invested in, however, we were comparing apples and bananas.

He had a total portfolio of $100k. Being cautious, he had invested only $10k into a mutual fund, from which he profited $4k after he sold it. The balance of his portfolio ($90k) was sitting in a money market fund earning some 0.35% per year.

So, while he had made 40% on 10% of his investment, he had only made 4.35% on his whole portfolio. My methodology was also focused on protecting my clients’ investments and it had increased their entire portfolio 29% (unrealized). That would be an apple to apple comparison when measuring my returns against his. Bob’s one fund realized 40% return. However, had I approached it the same way Bob had, I could have described one of the funds I used that had realized over 49% for the same period.

Actually, Bob’s not-so-good-news story didn’t stop there. Bob admitted to having followed the losing Buy and Hope strategy through the bear market of 2000 and had finally sold out at a 50% loss a year ago, before committing $10k to a mutual fund investment.

I was pleased to be able to tell him that my methodology had gotten my clients out of the market before the bear took his big bite, and they suffered only minimal losses before finding safety in money markets accounts. And when my trend tracking figures directed us to move back into the market, they still had most of their money poised to start earning for them again—which it did and very nicely, thank you.

The moral of the story is to look past the surface and don’t take any numbers thrown at you at face value. Remember, most people returning from a weekend in Las Vegas will shout about their winnings and mumble about their losses.

About The Author

Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped countless people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: www.successful-investment.com.

ulli@successful-investment.com

You’d have had to be living on a desert island with no TV, newspaper or internet connection to have missed hearing about the great mutual fund scandal of 2003.

The issue was that some mutual fund companies allowed certain hedge funds to engage in after-hours trading, sometimes incorrectly referred to as market timing. Unfortunately, some companies have used the confusion about the term "market timing" to further their own cause. How?

They have used this issue to pretty much ban all forms of trading their funds, and some companies are imposing hefty short-term redemption fees—penalties for all intents and purposes—in the name of avoiding impropriety. But the real idea behind it all is: Buy our fund and never sell it!

These companies advocate a stubborn Buy & Hold philosophy despite the devastating effects that approach had on investors’ portfolios during the recent bear market. Performance is immaterial to them—they want your money in their fund whether it’s going up or down.

With all of the negative press over the months you’d think that mutual fund companies would have cleaned up their act and started giving more consideration to the individual investor. Not so.

This was brought home to me when a fund manager of an $800 million mutual fund called me to see what my plans were in respect to holding our positions with his fund (about $2 million).

I explained my trend tracking methodology and he got very angry when he heard I would protect my clients’ accumulated profits by selling his fund if it were to drop 7% off its highs.

His blustering made it quite clear that he did not like anyone managing for the benefit of their clients; he only cared about what was best for him and his company.

So, what can you do to prevent being taken advantage of? For one thing, do what your mutual fund company does — not what they tell you to do. Adopt a strategy for following trends, such as I do, and use the mutual fund manger’s superior stock picking ability to your advantage by buying and holding only as long as the fund is performing well.

Remember, the fund manager has one big disadvantage over you: He always “has to” be invested so that the public can purchase shares in his fund. You don’t!

If market conditions dictate that you are better off in the safety of a money market account because we are in a severe downtrend, then you can take your money and run for cover. He can’t. He is constantly trying to adjust his portfolio to ever-changing economic conditions so that his potential losses are minimized. At the same time you are being told that his fund is the investment for all seasons. Don’t fall for it!

You as an individual investor are really in the driver’s seat. Unfortunately, you have probably been conditioned to think that Buy & Hope is a good investment strategy, when in fact it is a losing proposition.

Bottom line is, use a well performing mutual fund during strong up trends and get over to the sidelines during trend reversals. (That’s exactly what I did for my clients in October, 2001, and we retained the lion’s share of their profits while Buy & Holders kept insisting the emperor was wearing new clothes.) Pretty soon you will feel that you are in charge of your financial destiny and any chosen mutual fund is merely a tool to bring you closer to your goals of maximizing your gain and minimizing your losses.

About The Author

Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped countless people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: www.successful-investment.com.

ulli@successful-investment.com

What are you thinking when it comes to your no load mutual fund selections? Are you saving pennies and sacrificing dollars?

Are you spending your time looking at expense ratios, analyzing Morningstar ratings and searching for funds with low fees and no 12b1 charges? If you are like most people, you know these things in and out. You’ve spent hours evaluating them, and your chosen mutual funds cost little to purchase and maintain. But they still don’t perform to your hopes and expectations.

So, why is this happening? Because this kind of investing focuses on cost as opposed to value.

Investors with this philosophy have usually interviewed numerous advisors. But instead of trying to find someone suitable with a sensible approach, they only want to know who has the lowest fees. That’s like going to the cheapest auto repair shop and getting the best price, but your car still doesn’t run well.

Then there are the investors who call or email me wanting a recommendation on a no load mutual fund. They want one with no 12b1 charge, but they completely ignore the issue of how the fund might perform.

Both these kinds of investors spend their time trying to save pennies and in the process they are losing dollars. Instead of falling into the penny wise, dollar foolish trap, here are some ideas that will assist you in evaluating the end profit rather than just the short term saving.

1. Shift your focus from penny pinching to looking at the big picture: What can a mutual fund or an advisor do for you, not how much does it cost? Why? If you buy a given no load mutual fund at the right time and it gains a tidy 15% for you over a 6 week period, would you really care about the costs? If a mutual fund—or an advisor for that matter—can give you superior performance and an increase of several percentage points over your bargain price pick wouldn’t you pay an extra 0.25%?

2. Consider finding a fee-based investment advisor who uses a facts-based methodology and has a track record indicating those kinds of returns. For example, in my own practice I used a trend tracking approach to get my clients into the market on April 29, 2003. Plus, our research and homework led us to recommending funds that gained anywhere from 11.50% to 22.00% over the following 6 week period. How did you do during that time? Do you think any of my clients care whether one of these funds has a small 12b 1 charge? Or whether they have the lowest expense ratios in the industry? I know they don’t.

The bottom line is to look at costs as balanced by performance and that’s where you find value. Then seek true value not simple savings, enjoy healthy dollar-level returns and don’t sweat the pennies.

About The Author

Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped countless of people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: www.successful-investment.com; ulli@successful-investment.com

If you have been dealing with mutual funds for any length of time, you undoubtedly have faced the question of which is better: Load Funds or No Load Funds. If you are new to investing, "load" simply refers to the commission paid to the broker selling the fund. "No load" means there is no commission on the purchase or sale.

Most discussions in the past have centered exclusively on performance comparisons. Even rating services like Morningstar have occasionally chimed in with their opinion. However, rather than focusing only on performance, there are some other issues I consider far more important:

1. Who is selling load funds and why?
2. Who markets no load funds?
3. Which one is right for you?

Who is selling load funds and why? Most load funds are being sold through brokerage houses, financial planners and Registered Representatives. With few exceptions, most of those folks operate on the basis of selling as much product as possible. They collect their commissions up front, as a back end charge, or both (usually in the range of 5 - 6%). Whether you make money or not is not their primary concern. What matters most to those operating under this approach is how often you buy—and thereby generate new commissions for them.

Who markets no load funds? No Load funds are either marketed directly by the mutual fund companies or, more commonly these days, offered through discount houses like Schwab, Fidelity, and many others. The advantage to this is that you have an unlimited choice of funds in one place and don’t have to open separate accounts for each mutual fund family that you are considering.

Most fee based investment advisors, like myself, have independent relationships with such major discount firms and are able to offer clients just about any no load mutual fund available. They receive no compensation from the firm and only get paid by the client at a pre-determined fee arrangement. Under this arrangement, there is no hidden motivation to sell you a particular fund or to try and sell more in order to get a larger commission.

Which one is right for you? Whether you prefer dealing with someone selling load funds or an advisor getting you into no loads, let me make one thing very clear: You can make money or lose money either way! Why?

Let’s assume for the moment that there is no difference in performance between the types of funds—some of either kind will do well and some of either kind won’t. What then determines the successful outcome of you buying either a load or a no load fund?

The key is the advice you’re getting. And the fact is that many brokerage houses and Registered Representatives tend to be more interested in their profits than yours. Their investment advice is generally centered around Buy and Hold or dollar cost averaging and similar financially questionable recommendations. Hardly ever will you receive advice about when and why you should exit the market, either because of accumulated profits or to limit your losses. Getting out of the market is simply not in their best interest, though it may be in yours.

I must confess that, as a fee based advisor, I am somewhat biased and I prefer no load funds for my clients. I believe that this type of arrangement is best for all parties involved. It allows me to avoid any conflict of interest and to work exclusively for my clients’ financial benefit. And the better my clients do, the better I do.

I am able to choose no load funds and make buy decisions solely on the basis of my mutual fund trend tracking methodology. Following its signals, I can get clients into the market or out of it as often as is necessary to maximize profit or protect assets. And because I work with no load funds, other than a very occasional short term redemption fee, there are no transaction charges no matter how many times we move into or out of the market.

If market conditions dictate that we stand aside in a money market for an extended time in order to avoid a bear market (as was the case from 10/13/2000 to 4/28/2003), I can advise that because it is in the best interest of my client. I am always thinking about what will benefit my client, not worrying about lost commissions. (Please see my article “How we eluded the Bear in 2000” at http://www.successful-investment.com/articles12.htm.

Bottom line: Load fund vs. No Load mutual fund shouldn’t be the issue. Having a methodical plan and reliable advice as to when to buy and when to sell is far more important and will help you to secure a prosperous financial future.

© by Ulli G. Niemann

About The Author

Ulli Niemann is an investment advisor and has written about methodical approaches to investing for over 10 years. He avoided the bear market of 2000 and has helped countless people make better investment decisions. Subscribe to his free newsletter: www.successful-investment.com; ulli@successful-investment.com

When it comes to 401k’s there is an overabundance of sad stories. Here is one that at least has a happy ending—and it’s getting happier all the time.

Last year (in 2002) a friend of mine—let’s call him Jack—phoned and asked if I could help him with his 401k. Jack works for a large company as Senior VP of lending and is financially pretty astute. However, when it came to his 401k mutual fund decisions, he had repeatedly made the same mistake most people were making. As a result, he saw his account drop in value substantially.

At the time we were in the midst of the 2000 bear market, which showed no sign of letting up. Jack had purchased into a Lifestyle fund because someone recommended it. By the time he finally bailed out, it cost him dearly. However, he continued to make the same mistake by reinvesting.

He checked with the 401k representative and subsequently switched to a variety of mutual funds ranging from World Stock to Domestic Hybrids, Large and Small Value as well as Growth. But nothing worked and his portfolio value headed further south.

By the time we met to discuss his 401k Jack was pretty disgusted by the canned advice he had received and the continued losses he was sustaining.

Jack knew that I had pretty much eluded the bear market of 2000 by having sold all of my clients’ positions on 10/13/2000. We were safely in our money market accounts weathering out the storm (see my article ‘How we eluded the bear in 2000 at http://www.successful-investment.com/articles12.htm.

Thinking about this, Jack could only shake his head because at no point in the market slide had he ever been given what I believe was the right advice. That is, no one suggested that, since we were in a bear market, he might want to step aside and remain in the safety of his money market account. So he stayed invested, hoping against the evidence all around him to find something that was not crashing. That was his mistake, and one shared by many.

The advice that he consistently and continually received was that the market was close to a bottom, stocks “have to” move up from these levels, and, my personal money losing favorite, “the market can’t go any lower.” That’s what people wanted to hear and believe. But my tracking system said otherwise, and I followed its indicators—much to the delight of my clients.

Jack wanted to know how I could help. Looking at his mutual fund choices I realized that they were actually pretty decent, and he had a variety of some 13 funds. So, what was the problem and how could we solve it? In a way, the answer was simple. But people were having to get pretty beat up before they would see it.

My first step was, with Jack’s permission, to log on to his 401k web site. Then I started making some adjustments. Since my trend tracking model was still in a Sell mode, I liquidated all of his positions and moved the proceeds into money market. This accomplished one thing right away: He stopped losing money. When you stop moving backward, in relation to everyone else you are moving forward!

Second, as my trend index moved into a Buy mode on April 29, 2003, I researched his funds again. Based on strong momentum figures, I invested in two of his mutual fund choices. The result was very gratifying: the funds I chose moved up around 10% in the two months after my Buy. (Other funds I had tracked and selected for other types of investment programs moved up as much as 26% in that period.)

Jack’s been happy ever since. While the 10% appreciation is not as great as I was able to do with assets outside his 401k, it still confirms that the key to successful investing is methodology and discipline. Our disciplined approach relies on objective information. It disregards Wall Street hype designed to perpetuate commission-rich buy now while it’s low, or buy and hold strategies.

If you have been in a situation similar to Jack’s, or you want to avoid being in one, find an investment advisor who bases his decisions on a measured and objective approach. That will give you the edge no matter whether the market is going up or down and will give you the greatest protection from sad stories with your 401k.

© by Ulli G. Niemann

About The Author

Ulli Niemann is an investment advisor and has written about methodical approaches to investing for over 10 years. He avoided the bear market of 2000 and has helped countless people make better investment decisions. Subscribe to his free newsletter: www.successful-investment.com; ulli@successful-investment.com