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Investment Tips

- Alan Lavine and Gail Liberman

There are a few tried-and-true rules to help you manage your mutual funds in volatile markets.

Unfortunately, most investors ignore them.

Here they are:

  • Invest only in well-managed mutual funds with good long-term track records.

  • Hold the funds for the long term.

  • Invest regularly.

  • Avoid trying to time the market, or chase after hot mutual funds.

  • Avoid selling during a temporary scare of bad news.

    Stock funds gained 8.9 percent over 10 years ending in 2005, noted Vanguard Group founder John Bogle.

    But most people actually earned an annual return of only about 2.4 percent. Reason: Investors move in an out of stock funds trying to cut losses and boost returns.

    The low return stems from adjusting performance, based upon when the money actually went into the funds.

    Bogle's survey spanned 200 stock funds with the largest money flows.

    Research by Avi Bachman, director of research for Strategic Insight, New York, supports Bogle's findings. Investors tended to buy a mutual fund after the fund widely outperformed similar funds and a comparable benchmark index. As a result, they found themselves in underperforming investments.

    More proof that investors don't follow the basic rules: In the late 1980s and early 1990s, net purchases of fund shares were minimal when stocks were underpriced. But investors poured more than $500 million into high-flying technology and new economy funds from 1995 through 2000.

    Eventually, you might still painfully remember, those heavily invested in technology, lost their shirts.


    Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.

    To read more columns, please visit the column archive.

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