Posted: November 18, 2011
The three-step no-brainer mutual fund strategy
What Wall Street doesn't want you to knowBy 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.
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.