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Author: brwhiz Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75777  
Subject: Re: How low do I let it go? Date: 6/15/2002 12:41 PM
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While Indexing might be for "those who haven't learned enough to take control of their investments" it is also for many of us, the best equity choice there is in our employer sponsored retirement accounts.

Sorry, I missed a category of investor for whom index funds might be a good bet. But there are funds out there (18 at last count) that had consistently returned over 20% CAGR for the last 1, 3, and 5 years. Maybe you should talk your plan administrator into including one of those in YOUR plan.

I'm limited to around 700 funds in my 403(b) plan and somewhere around 4000 funds in my 457. But that hasn't kept me from running circles around the indexed funds.

And everybody keeps mentioning "expensive" funds. Read page 69 of Peter Lynch's Beating the Street where he discusses loads and expense ratios. When considering loads, you need to calculate the net yield of a load fund for the period of time you plan to hold it before you can accurately compare it to a no-load fund. And Peter says "forget expense ratios"; they have already been included in calculating a funds yield. So a fund which CONSISTENTLY returns 14% with an expense ratio of 3.2% is far superior to a fund which CONSISTENTLY returns 12% and has an expense ratio of .02%. Actually the first fund is always the best choice whatever the expense ratio numbers.

Now, the beauty of a falling market is that your regular monthly contribution is buying you more shares of the fund than you were getting previously during the last year and a half. But that seems to be little compensation for the people I know who pull out their plan statements from mid 2000 and see what their funds were worth then. Their current balances are significantly below what they were back then, even though they have been pumping more money into their funds each and every month. Not many people can get past the emotional impact and calmly accept the drop. And maybe that's because nobody can say when the market is going to attain its former levels (some say it may be as long as 10 years) or they see portfolios which are rapidly gaining in value instead of shedding money.

If you're happy with the returns you're getting, and willing to wait out the slump, and not bothered by 30% drops in your funds values, then keep on keeping on. If you're not, then you CAN take charge of your investments and realize some OUTSTANDING returns. Right now my taxable accounts are beating the pants off of the S&P 500 even after commissions and taxes (33%).
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