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Posted: November 18, 2011

The three-step no-brainer mutual fund strategy

What Wall Street doesn't want you to know

Ron Phillips

This concept is so deceptively simple and easy to start you might not take it seriously. It could save you hundreds or thousands of dollars in fees and commissions. Wall Street would prefer you to NOT read this article for fear of losing business.

This approach is straightforward, can be used as a stand-alone strategy and is easy to manage. If this is your only investment it can pay off handsomely for you if allowed to work as described.

STEP ONE: Invest in a Balanced Mutual Fund or Asset Allocation Fund

A balanced fund is a combination of assets. It is usually a blend of stocks, bonds and cash. You might see the word "balanced" in the name of the fund. For example, it could be called "Dreydelity Balanced Fund".

It could even include international stocks and bonds, real estate or other types of investments and therefore could be an asset allocation fund. Both types will work.

The key is to have the diversification of various asset classes. This will provide a one-stop investment for the long haul that can be held for years with minimal maintenance.

STEP TWO: Dollar-Cost Average into the Fund & Invest
More as it Drops in Value

Invest a fixed amount monthly, dollar-cost average, to buy more shares when the market is down and less over-priced shares when the market is too pricey.

When the price drops significantly, as in a "bear" market, you add even more than the usual amount. By doing that, you are making market volatility work for you. And accumulating cheap shares for future growth.

STEP THREE: Invest for Fifteen or More Years

Why fifteen years? According to Ibbotson Associates, Inc., from the years 1926-2000, you would have had a 100% chance of profit if you had invested in stocks and held for fifteen or more years. Yes, you read that correctly; you would have been assured a positive return.

But what about the awful stock market returns in the last decade? According to website MoneyChimp.com, even the last 15 years would have produced a 6.72% average annual return.

You can now see how flawed it is when someone equates the stock market with gambling. I would much rather have those odds than a Vegas slot machine.

These years also include many huge events like The Great Depression, Pearl Harbor bombing, JFK assassination, frequent recessions, high interest rates, the Dot-Com Bubble, The Great Recession, a "lost decade" in stocks and much more.

In addition, with this strategy we are using bonds and cash which produce regular income and lower volatility, helping to balance our returns in each period.
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Ron Phillips is an Independent Financial Advisor and a Pueblo, Colorado native. He and his wife are currently raising their two sons in Pueblo. Order a free copy of his book "Investing To Win" by visiting www.RetireIQ.info or leaving a message on his prerecorded voicemail at 924-5070. Simply mention Promo Code #1001 when ordering.

Enjoy this article? Sign up to get ColoradoBiz Exclusives. The opinions expressed in this article are solely that of the author and do not represent ColoradoBiz magazine. Comments on articles will be removed if they include personal attacks.

Readers Respond

The stock market is gambling not investing. How many of us would have purchased the stocks in our portfolios at the prices we did based on the dividends these stocks pay back to us? Largely we do not buy because it is a fair price to pay for our small piece of the company but because we gamble that someone will pay more for the stock next week or next year than we paid now. And sadly we are not fueling the engine of growth. Only the person who first bought that stock put money in to the company to grow it. The rest of us are gambling but not growing that business. By Burt on 2011 11 18
There is nothing encouraging about knowing if I held on for 15 years I would have a positive profit. The means as little as a $10 gain while the value of my investment is eroded by inflation and taxes. This is not reassuring financial advice and if it is best investment professionals have to offer we are better off enjoying our money now. By Linda Ferentchak on 2011 11 18
Mutual funds not the most appropriate investment vehicle most of the time for 21st century investors. The strategy you outline has risks such as zero transparency. In an ERA when over a weekend a company can go bankrupt, it is imperative that clients control their allocation surgically through real-time transparent holdings. Transparency translates to certainty at a level that mutual funds simply do not offer their shareholders. The other risk to your strategy are the potential tax consequences and opportunity costs associated with paying taxes on gains that you have not infact earned by selling your interest in the investment. By Paul on 2011 11 18

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