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WHAT'S NEW? Our Latest Updates!

April 2004 performance review

The SSgA Tuckerman Active REIT (SSREX) fund is no longer in this portfolio – we cashed out of funds that invest in REITs (real estate investment trusts) last summer. While we missed some upside in the fund, we also missed last months 15% fall. Given that stocks are more expensive then last year, if REITs fall another 15% or so we may add a small stake again.

Easy Does It

Each and every fund in each and every model portfolio can now be purchased on Scottrade’s no transaction fee (NTF) platform, which means that investors can buy and sell them without paying a fee of any kind. We synched our portfolios with Scottrade’s platform because Scottrade has the highest number of funds available for sale without transaction fees.

March 2004 performance review

Our recent spring cleaning seemed to help the Conservative portfolio. For the month it was up .29%, which may not sound like much, but given the stock market’s decline and our shorter duration bond holdings we’ll take it with a smile.

Two Weddings and a Funeral

Since few systems to predict the many ups and downs work consistently, the practical solution is to stay invested at all times. The only way to time the market is to spend as much time in the market as possible. 

The Worst Fund Advice Ever

We’ve been telling investors for years that they should never, ever buy a load fund, be it a front end, back end, or the intentionally deceptive level load funds. Loads are built in sales commissions primarily used to compensate brokers who sell funds to investors.

The gist of our anti-load argument is simple: there is no difference between load and no load funds other then the added sales commission. It’s like running a race with wet boots on – you’re at a disadvantage from the get-go.

But has our anti-load proselytizing been wrong all these years? If you had read a recent article in Investors Business Daily, you might think so.

Ask MAX: What's better: an index fund or an actively managed fund?

03/21/04 - Ask MAX

Blanche from Florida asks:

What's better: an index fund or an actively managed fund?

The rivalry that exists between active fund people and index fund people is a long and bitter one, and has been growing in intensity ever since Vanguard's John Bogle launched the first index fund, the Vanguard 500 Index Fund (VFINX), back in 1976. Supporters of index funds think active fund owners are suckers who pay higher fees for worse performance. Active fund owners consider index fund owners over-diversified, risk-averse wimps.

I want to be very careful here, Blanche. Because of the highly controversial nature of your question and the potential for harm an incomplete answer could cause on one side or the other, I'm going make sure to respond to it as carefully and completely as I can.

An index fund is a mutual fund that tries to mimic, as closely as possible, the holdings of a particular index. Depending on the fund, the index tracked might be the S&P 500 Index, the Dow Jones Industrial Average, the Wilshire 5000 Equity Index, the NASDAQ Composite Index, or any one of the scores of other indexes that have sprung up over the years.

An actively managed mutual fund doesn't follow an index. Active managers build their funds one company at a time, through painstaking research and analysis. The job of an active fund manager is to identify and buy the very best stocks that fit their fund's prospectus objective.

Both actively managed and index funds have aspects to them that are good, and aspects that are not so good. In our MAXadvisor Newsletter model portfolios we invest in both index and actively managed funds. Which one is 'better' depends on who it is that is buying the fund, what that person hopes to achieve with the money they place in the fund, and even the markets conditions that exist during the life of the investment.

February 2004 performance review

For the conservative portfolio we sold our 5% position in the Northern Income Equity (NOIEX) fund. We originally added this fund in April 2002 and the fund was up 13.5% over that time period. Convertible bonds benefit from upward movements in stock prices as the value of the conversion feature increases. Convertible bonds yield less then comparable risk corporate bonds because of this upside potential. As stock prices are back to fully valued, we think the below average yield will hold back portfolios going forward.

March 2004 Trade Alert!

We’re lowering our risk level slightly by moving some profits into more conservative investments. Stocks (particularly foreign stocks), convertible bonds tied to stocks, and foreign bonds have all risen in the last year. The reward for risk taking will be lower going forward.

Why We Sold

The main reason we don’t trade actively is that our fund investing strategy is reasonably long-term – when we like an area of the market or category of fund we usually like it for reasons that are anything but trendy. 

January 2004 performance review

With a larger equity stake then the safety portfolio, the conservative portfolio was up 1.42% in January. Utility stocks were strong, as they usually are when interest rates fall. The American Century Utility Income fund (BULIX) was up 1.8% for the month.