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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Re: IRA capital gains convert to ordinary income Date: 4/15/1998 3:07 PM
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Greetings, PSUEngineerFool, and welcome.

<< From my observations, most companies offer an index mutual fund. The taxable account needed to try to outperform the index would probably be several stocks (in essence creating your own mutual fund).>>

Not really. I'm willing to wager at least 40% of 401k plans do NOT offer an S&P 500 index fund as an option. If you doubt that, just look at the numerous posts in this folder where folks complain about not having that option. In my own firm it wasn't until two years ago we were finally able to browbeat our investment committee into adding one. As I said, far too many have a poor selection. Over the long term, most managed funds come out woefully behind the vanilla index fund.

<<You make the assumption that most people will have the time and ability to be able to pick their own stocks and beat the S&P 500 when most professionals of managed mutual funds can't.>>

No, I don't. Only those who are interested in how their portfolios will do will venture beyond the 401k options or mutual fund environment. Sad ,that, but true. Fortunately, that doesn't pertain to the majority of the readers of this or other folders within Fooldom. It is NOT rocket science, and with but a modicum of knowledge virtually anyone can outperform the vast majority of stock funds out there. We aren't pressured to churn our portfolios chasing the "hot" idea of the moment. In stead, we use a buy and hold strategy that produces much better results. Ever look at the turnover ratio of stock funds? Of the roughly 3540 stock funds started in 1995 or earlier, the median turnover rate is 67%. The highest is 1,378.1%!! It's no wonder they have a hard time performing.

<<To beat an S&P 500 index fund in a 401(k), you must
1) do thorough research on each stock
2) constantly keep track of stock and company performance
3) always buy low and sell high
4) hope something unforeseen in the market doesn't screw up the first 3 steps.>>

Or you could probably just use one the various Dow strategies discussed elsewhere and still fare better than with a fund. Regardless, it's a personal issue. Each of us have to examine what we are willing and able to do. If we are Fools, we'll make the comparisons and go with the one we think will give us the biggest bang for our buck.

Regards…..Pixy

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