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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: Steve Hallam who wrote (4267)	3/19/1998 2:33:00 PM
From: Steve Hallam	Read Replies (2) \| Respond to of 42834

Some thoughts on the big picture of investing in mutual funds: Perhaps a two pronged strategy is best. Mutual funds might be broken down into two categories, ones designed to 1) beat the market or 2) be the market. "Be the market" -- given the low cost, high performance and simplicity of indexed funds, especially the S&P 500, they seem like a great place to start any portfolio. "Beat the market" -- especially for young aggressive investors some funds should be chosen that have a track record or an outlook suggesting that they will beat the market. What you don't want is a mutual fund that has high expenses and underperforms. Mr. Brinker would ask, "What are you doing?". If you pay extra to underperform the market year after year you have been had. Mutual funds that consistently underperform the market should go,unless there is a strong rationale for a market change (note - rationale for change not just "hope" for a change). Diversity: either too much or too little is bad. Too little is the more obvious -- putting all your money in one individual stock is foolish because you run a significant risk of losing substantial principle. Less obvious is the other extreme too much diversity. Investments in areas with consistently weak returns in the name of diversity is equally foolish (I'm less sure about this one or perhaps just unsure of where to draw the line). Investing in the S&P 500 might be just about right. Historically strong performance and diversity across sectors (acknowledgeing the absence of diversity across capitilization). Based on a casual look at the data I haven't seen an investment that consistently outperforms the S&P 500 over the long run. One might argue that diversification beyond the 500 is foolish unless there is a track record or a strong rationale for outperformance. If my portfolio underperforms the S&P 500 -- what am I doing? Is the S&P 500 diverse enough?