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Author: Hillmp Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Re: Beating the Dow with Payroll Deductions??? Date: 2/6/1998 12:24 PM
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In a message dated 98-01-29 19:45:13 EST, you write:

<< Subject: Re: Beating the Dow with Payroll Deductions???

Greetings, Hillmp, and welcome.

<<My question: Am I right in thinking that twice monthly contributions defeat one of the main purposes of the Beating the Dow strategies (including the Almighty Foolish Four!), which is to cut down on transaction costs? The 10 highest yielders on January 31st might not be the same on March 15th or August 31st, etc.
Am I missing something or does a Beat the Dow strategy sound reasonable when coupled with 24 separate contributions throughout the year? Anything else I should be considering that I haven't mentioned?>>

Nope, you're not missing a thing. In this case, because you can invest solely in mutual funds and because no mutual fund monthly investment can ever emulate a Dow strategy successfully, the most Foolish path would be to stick to an index fund.

Regards.....Pixy >>

I was ready to go with an S&P 500 index fund when a nagging thought sent me to The Motley Fool Investment Guide, page 86 to be precise. It's the page showing a comparison of average annual growth rates. The two that interest me here are S&P 500 11.2% - The Dow Ten 17.2%

Now, it's true that my bimonthly salary deductions won't mirror the Dow Ten strategy in the first year. But the second year and each successive year, more of my money will be acting in a true Dow Ten fashion. It's only the current year's contributions that dilute the overall effectiveness. And with each year, assuming that my contributions stay level (which I hope they *don't*!), the dilution effect would get smaller.

After 10 years, 90% of the money would be following a true Dow Ten strategy and 10% would not. Since I'm planning on having this money in the account for at least 20 years (it's my retirement account), I'm thinking the sizable (6%) difference between the average growth rates of the Dow Ten and the S&P 500 strategies might overcome the ever decreasing dilution effect, and thus make the Dow Ten strategy the way to go.

I'd love to hear your thoughts on my thinking.

With thanks,
Hillmp

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