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May, 2016


Investors with a long horizon and not a great deal of time for research might consider regular purchases of mutual fund shares. Mutual funds invest in a number of different assets, so one need worry less about diversification than if buying individual common stocks. Moreover, they are frequently available at relatively low cost for the management of one's invested money.

By dollar cost averaging (investing essentially the same dollar amount at regular intervals, such as monthly, quarterly, or annually), one tends to buy more shares when the market and one's preferred mutual funds are lower in price, fewer when they are higher, thus reducing the overall cost basis. Especially if investing in tax-deferred accounts, such as Roth or regular IRAs or in 401K Plan accounts, one may simply direct that capital gain and dividend distributions be reinvested upon receipt in the account and leave one's holdings alone for decades at a time, allowing one's investments a chance to develop good compound total returns.

It is useful to analyze a group of mutual funds periodically to see if they still warrant inclusion in one's portfolio, but caution is appropriate before selling out and switching to a new fund. Often, one gets fearful or impatient and sells lower performing mutual funds at just about the wrong time, then investing the redeemed dollars in other funds that have performed quite well, just before they return to more modest levels of performance, losing out in both steps.

For the beginning investor, it is good to be conservative and not plunge in at once with one's entire investment nest egg. The U. S. stock market seems a bit overvalued just now, yet could continue to go up for awhile (or not, no guarantees). So, one might invest some fraction, perhaps two-thirds for instance, in the mutual fund portfolio this year, then put additional money into it once the market and one's holdings have gone down perhaps 10% or more, etc., until fully invested.

At the table below are several mutual funds that have on average fairly low costs but good overall total returns on an annual basis over the past ten years. When keeping money in reserve, it is not appropriate to look at market downturns as a negative for one's investments. Rather, they are chances for us to rush in and buy at bargain prices, just as we might get good, desirable appliances when they are suddenly at steep discounts on the Friday after Thanksgiving. The table's assets have an average expense ratio of 0.69% and an average annual ten-year total return (through 3/31/16) of 10.46%.

Time Tested Mutual Funds
AMG Yacktman Focused Fund Service ClassYAFFX$20.330.93%1.25%10.24%800-835-3879
Buffalo Discovery FundBUFTX$19.090.00%1.01%9.23%800-492-8332
DFA U.S. Large Company PortfolioDFUSX$16.042.23%0.09%7.02%512-306-7400
Fidelity Select IT ServicesFBSOX$40.170.00%0.81%12.99%800-343-3548
Fidelity Select PharmaceuticalsFPHAX$18.530.67%0.78%11.33%800-343-3548
Fidelity Select RetailingFSRPX$103.030.08%0.81%13.18%800-343-3548
Fidelity Select Software and IT ServicesFSCSX$119.290.08%0.77%13.09%800-343-3548
Parnassus Core Equity Investor ClassPRBLX$37.142.11%0.88%9.61%800-999-3505
Vanguard 500 Index Fund Investor ClassVFINX$189.422.02%0.16%6.89%877-662-7447
Vanguard Health Care Fund Investor SharesVGHCX$201.030.97%0.34%11.07%877-662-7447
(*Through 3/31/16))

We wish you luck with your own researches and purchases and hope the equities markets provide you with some of the riches they have to generations past. For example, an investment of $10,000 in the Vanguard 500 Index Fund (VFINX) at its inception with all distributions reinvested would now be worth $585,100** (as of 3/31/16). A $3000 investment in each of the indicated mutual funds on the first trading day of April, 2006, would (through 3/31/16), with no redemptions and all distributions reinvested, now in total be worth $81,110. Of course, past performance is no guarantee of future returns. Subsequent results could be either below or above those from these illustrations.

(**The VFINX average annual total return since inception, 8/31/76, was 10.79%.)


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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