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Don’t Let Mutual Fund Names Fool You Out Of Your Retirement!
By: Dr. Scott Brown, Ph.D.
Mutual fund managers use fake fund names to part you from your money such that
you cannot judge what a fund does by its name. Many funds have names that are
outright misleading or even deceptive. In the late 1990’s, for instance, during
the technology stock bubble, some portfolio managers took advantage of public’s
desire to chase the latest fad by slapping “internet” in front of their fund
names.
The chances of that happening now are possibly lower. As of July 2002, the SEC
requires funds to have at least 80% of their assets in securities that their
fund name implies, up from 65% previously. This new rule is forcing funds that
called themselves something like the America’s Government Fund to either dispose
of East Asian government debt if it exceeded 20% of fund assets, or to change
the fund’s name.
Likewise for funds that call themselves an equity income fund but have 25% of
assets in stocks that paid no dividends. More than five hundred funds have had
to change their names because they failed the 80% rule. Invesco’s Blue Chip
Growth fund, for example, is now called just growth fund, since 60% of its
holdings are in technology stocks, and many of those can hardly be called blue
chips these days.
The 80% rule still allows mutual funds to invest in just about anything up to
20% of holdings. Why don’t you just avoid the entire problem by buying shares of
an indexed mutual fund when you only have a selection of mutual funds to select?
For this reason I strongly recommend that if you can only buy mutual funds, as
in the case of the 401(k), then restrict your purchases to indexed funds such as
the Vanguard 500 (VFINX). The best you can do is to learn to select individual
stocks in your Roth IRA or individual account.
About the Author:
Dr. Scott Brown, Ph.D., the Wallet Doctor, is a successful investor. Dr. Brown
holds a Ph.D. in finance. The Wallet Doctor is sought after for investment
advice and coaching. For more information visit Dr. Brown’s site at http://www.BonanzaBase.com
or sign up for his investment tips at http://www.WalletDoctor.com
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