Dale Maley - Index Mutual Funds: How to Simplify Your Financial Life and Beat the Pros

by

Dale C. Maley

SMASHWORDS EDITION

PUBLISHED BY:

Artephius Publishing on Smashwords

Index Mutual Funds: How to Simplify YourFinancial Life and Beat the Pros

Copyright 1999 by Dale C. Maley

All rights reserved. Without limiting the rightsunder copyright reserved above, no part of this publication may bereproduced, stored in or introduced into a retrieval system, ortransmitted, in any form, or by any means (electronic, mechanical,photocopying, recording, or otherwise) without the prior writtenpermission of both the copyright owner and the above publisher ofthis book.

Mutual Fund Shock

Why Are There Over 8,000 Mutual Funds to ChooseFrom?

Bull Market in Stocks

Global Competition and 401(K)'s

Anticipated Demise of the Social SecuritySystem

Baby Boomers

Lack of Investor Knowledge

Low Barriers to Entry

Future of Mutual Funds

Basics of Mutual Funds

Best Type of Investment Asset

Are Common Stocks Too Risky

Diversification

A Professionally Managed Mutual Fund is Born

Continued Popularity of Mutual Funds

Mutual Fund Performance

How To Know Your Mutual Fund is the Best

Fund Comparisons

Index Funds

Mutual Funds not Consistent

Fund Performance

Cost Disadvantage

Efficient Market Theory

Monkeys and Dart Boards

Wilshire 5,000 and S&P 500 Studies

An Index Fund is Born

Indexing Grows

The Beardstown Ladies Controversy

Index Fund Explosion

Malkiel's Book

Bogle's Influence

Personal Finance Magazines

The Internet

Why Havent Index Funds Taken Over

Indexed Stock Funds Not Available until 1976

Lack of Education About Investing

No Financial Incentives to Sell Indexed StockFunds

Mutual Fund Companies

Indexed Stock Funds Not Available to 401(K)Investors

Indexing Not Exciting Enough

Indexing Concept Hard to Believe

Glorification of Professional Mutual FundManagers

Bull Market

Just Settling for Average Results

No Publicity from Personal FinanceMagazines

Global Indexing

Global Markets

Overseas Investment Opportunities

A Foreign Index Fund is Born

Closing Thoughts

Available Index Funds

Chart of Available Index Funds

Selecting Common Stock Index Funds

U.S. Common Stock Index Funds

Foreign Common Stock Index Funds

Japan

Cost Considerations

Other Considerations

Indexing Into Retirement

Getting Ready for Retirement

Retirement Strategy

Asset Allocation

Asset Allocation and Investor's Age

Using Indexing to Implement Asset Allocation

Still Think Your "Gunslinger" Can Beat theMarket

Have You Compared the Professional's Performanceto the Market's Averages?

The Professional Manager Faces a Heavy CostDisadvantage

The Professional Manager Faces Tax DisadvantagesAlso

Very Few Professionals Have Consistently Beatenthe Markets

Going Against the Advice of the Number OnePersonal Finance Magazine

Compromise Strategy

Activity Checklist

Summary

John Bogle Speech on Birth of First IndexFund

Money Magazine Editorial AcknowledgingImportance of Index Funds

Compound Interest Formula

Other Investment Resources

Glossary

I have not attempted to cite in the text all theauthorities and sources that were consulted for preparation of thisbook. To do so would require more space than is available. The listwould include departments of the Federal Government, libraries,institutions, and many periodicals.

Every effort has been made to trace,contact, and obtain permission from copyright holders for anycopyrighted materials used in this book. However, in someinstances, this has proved to be impossible. If notified, thepublisher will be pleased to rectify any omissions in the nextedition of this book.

Many friends helped review and improve the book.I would particularly like to thank Don Harris, Whiteford Mauldin,Chuck Twiggs, Wes James, and Jim Munz for their help andsupport.

I would like to thank Professor William Scott ofthe Illinois State University College of Business. I learned agreat deal from Professor Scott s classes on investment andfinance. Through a term paper in Professor Scott's class, I wasable to first learn about the advantages of indexing compared toprofessional portfolio management.

Many thanks also go to Matthew Roberts,President of Index Funds Online. Matthew provided support andinspiration for completing this book.

I would also like to thank my wife Connie forher understanding and support in writing this book.

This book is designed to provide information inregard to the subject matter covered. It is sold with theunderstanding that the publisher and author are not engaged inrendering legal, accounting or other professional services. Iflegal or other expert assistance is required, the services of acompetent professional should be sought.

It is not the purpose of this manual to reprintall the information that is otherwise available to the authorand/or publisher, but to complement, amplify, and supplement othertexts. You are urged to read all the available material, learn asmuch as possible about investing and to tailor the information toyour individual needs. For more information, see the manyreferences in the Appendix.

Investing is not a get-rich-scheme. Anyone whodecides to invest must expect to contribute a lot of time andeffort.

Every effort has been made to make this book ascomplete and as accurate as possible. However, there may bemistakes both typographical and in content. Therefore, this textshould be used only as a general guide and not as the ultimate ofinvesting information. Furthermore, this book contains informationon investing only up to the printing date.

The purpose of this book is to educate andentertain. The author and Artephius Publishing shall have neitherliability nor responsibility to any person or entity with respectto any loss or damage caused, or alleged to be caused, directly orindirectly by the information contained in this book.

_________________________________________________________

Mutual Fund Shock

Many people only buy a new car every five or tenyears. When these people walk onto the car dealer's lot after beingout of the new car market for many years, they are shocked by howmuch the cost of new cars has increased!

This same type of "shock" is experienced by newmutual fund investors. A new mutual fund investor will often decideto investigate mutual fund investment by turning to the financialsection of a newspaper. The new mutual fund investor is shocked todiscover there are over 8,000 different mutual funds to choosefrom!! The new mutual fund investor is often completelyoverwhelmed about how to begin to choose from 8,000 differentmutual funds.

A new investor often only has enough money toinvest in one mutual fund. Once new investors learn they must pickonly one mutual fund out of more than 8,000 funds, they quicklystart to feel like players in a Russian roulette game!!

This book will help new investors make sense ofthe mutual fund industry. New investors will learn why there are somany mutual funds available. This book will also explain the basicsof mutual funds and common stock index mutual funds. The newinvestor will learn how to avoid having to sort through 8,000+mutual funds by using a few common stock index funds to achievetheir financial goals.

If you already invest in mutual funds, this bookwill show you how to beat 80% of the funds every year by usingcommon stock indexed funds. You will learn how to evaluate theperformance of your professionally managed mutual fund. You willlearn how to determine if your professional mutual fund manager isreally doing a good job with your investments.