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If you spend more than an hour each week tracking your mutual funds, you may have too many. So says Richard Moroney, editor of the weekly newsletter Dow Theory Forecasts.
So how do you figure out just how many mutual funds to maintain? "If you consider conventional wisdom, you should have one or two mutual funds for each asset class," says Moroney. "You need to decide how much you want in [domestic] stocks and bonds and in international stocks. That's the first decision and from that will flow others. You also want good growth, small-company and junk bond funds as well as [a short-term bond]."
When deciding which funds to keep and which to toss, Moroney advises examining each one to see whether the reason you purchased it is still valid. Also, compare performance to expenses. If the return is only fair and the expenses are high, find a stronger fund in the same category.
Next, consider what percentage of your investment expenditures will be in each fund. "In general, there's not much reason to have less than a 10 percent investment in a fund," says Moroney. "A 10 percent minimum is a way to make sure you really like the fund."
Another evaluator to use is fund management style, says Moroney. "Be wary of funds that flip from one approach to another," he says. "The best managers stick with a consistent approach."
After you complete your review, Moroney advocates keeping no more than eight funds. However, this is not an iron-clad rule and can be modified, especially if you have a large portfolio or enjoy tracking multiple funds.
Know Your Stuff
Your cousin Jim has a friend who called you with information on investing in one of the hottest new technology companies around. He says it's an opportunity to get in on the ground floor. It sounds legitimate, and besides, Jim is investing, and he's as honest as the day is long.
Looks like a good place to put your money, right? Not necessarily. Before you invest your hard-earned dollars in anything, investigate it. According to the Council of Better Business Bureaus Inc. in Arlington, Virginia, its affiliates receive more than 327,000 inquires on the investment industry annually, and complaints against the industry rose 46 percent from 1995 to 1996.
To provide consumers with information on investment fraud, the council has published a book, How to be an Informed Investor. The book examines different, potentially fraudulent activities--offering a description of schemes, examples of people who have been scammed and tips on what to watch for. It also discusses how to select and work with financial planners and stockbrokers.
The guide book is available from your local Better Business Bureau or can be ordered from the council for $16.95 (including postage and handling). Send a check or money order payable to the Council of Better Business Bureaus Inc., Department 023, Washington, DC 20042-0023.
Contrary to popular belief, the recent rash of bank mergers and acquisitions is not leaving small businesses high and dry in the hunt for capital. And despite what the headlines imply, most small banks are not being eaten up by the huge institutions; rather, they're merging with banks of similar size.
According to findings from the Federal Reserve Bank, from 1993 to 1996, more than half (655) of the 1,384 small banks with assets of $250 million or less that changed ownership were acquired by banks of the same size. Another 610 were purchased by banks with assets of $250 million to $5 billion, and only 119 were bought by banks with assets exceeding $5 billion.
The report, compiled by Federal Reserve economist Nick Walraven, also found that the small banks that did the acquiring were typically more active than those banks they acquired in making small-business loans (defined as commercial and industrial loans initially in amounts of less than $1 million). That's good news for entrepreneurs. The study noted, however, that after a bank initially acquires another institution, the percentage of assets allocated to small-business loans temporarily dips and then gradually rises. In general, the picture continues to look good for small firms seeking bank loans.
Dow Theory Forecast, (800) 233-5922, http://www.dowtheory.com
Federal Reserve Board, http://www.bog.frb.fed.us