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From: charlie@cca.UUCP (Charlie Kaufman)
Newsgroups: net.invest
Subject: Re: Questions on mutual funds
Message-ID: <5168@cca.UUCP>
Date: Tue, 19-Jul-83 10:58:55 EDT
Article-I.D.: cca.5168
Posted: Tue Jul 19 10:58:55 1983
Date-Received: Tue, 19-Jul-83 19:28:15 EDT
Lines: 60

Replying to:

	I just got an advertisement from "The No-Load Fund Investor", a
	quarterly mutual funds investment advice service.  I have no
	experience with stocks - I'm timid but interested.  I haven't much
	to invest and would rather not lose it (which, of course, makes
	me unique).  So I come to the experts in this corner of the net.

	Are these guys for real?  They sound too get rich quick slick.
	It sounds like the sort of thing I expect to find in matchbooks
	and in the back of "Psychology Today" [ :-) ].


First, mutual funds are legitimate investments.  Current prices are
listed in most newspapers that list stock prices.  The stock market has
done exceptionally well in the last year and mutual funds have shared in
that growth.  The profit figures in the NO-Load Investor are undoubtedly
correct, since they are easy to compute.

The catch is that past performance is a poor predictor of what the funds
will do in the future.  It is not obvious whether professional fund
managers do better than throwing darts at the stock pages.  The funds
with the best record for the last year are probably the most
speculative.  They will probably go down the most if the market turns
around.  In my opinion, there is no reason to choose a fund based on its
past performance (but mine is a minority view).  But, if you have to
choose one and have no other basis, it probably won't hurt either.

Mutual funds are inherently risky.  You should not put money in them you
can't afford to lose. (Money Market Funds are an exception, but they
offer no potential for profit either).  On the other hand, you could
conceivably double your money in a year or two.  It has been said that
the only difference between Las Vegas and Wall Street is that on Wall
Street your losses are tax deductable.  Are you a gambler?

If you're still interested, mutual funds offer some advantages over
picking stocks yourself.  The biggest is that the minimum ante is
smaller.  You can probably get into a mutual fund for $500 (maybe less
if you shop around).  In theory, you can get into stocks cheaper than
that, but the commissions will kill you.  I wouldn't recommend stocks
unless you have at least $2000 to play with.  With less than $10000,
stocks will be much riskier because you will not have adequate
diversification.

There are two kinds of mutual funds:  Load and No-Load.  The difference
is that load funds are sold by agents, who will answer your questions,
help you decide what to buy, and help you feel comfortable with what
you're doing.  For this, he gets a 4-8% commission on the sale.  On
No-Loads, you're on your own.  It's like a gas station with full and
self service.  If you're willing to do a little extra work, you can save
a few bucks.

I believe everyone should have a little money in the stock market in
some form.  It makes reading the newspaper much more interesting.

Good Luck.

                          --Charlie Kaufman
                            charlie@cca
                            ...decvax!cca!charlie