| The best mutual fund investment strategy for | | | | month (equal amounts) into his three other funds |
| most people reduces risk and gives the investor | | | | (his investment funds) from the money market |
| plenty of flexibility. Here's how to set yourself up | | | | fund. |
| to invest money so you don't need to worry | | | | This is his best mutual fund investment strategy |
| when the investment environment turns ugly. | | | | and it gives Jack plenty of flexibility. If he wants |
| We'll use Jack as our example. He's afraid of losing | | | | to add extra money, he sends it into the money |
| money, but at the same time wants to earn | | | | market fund without interrupting his investment |
| higher returns than he can get from his bank. A | | | | strategy. If he wants to take some money out, |
| moderate risk, at most, he will accept. Jack is also | | | | he takes it from there as well. He has the |
| frugal, and hates to pay fees to invest money. He | | | | flexibility to change the amount of money that |
| has a savings account at the bank he adds to | | | | flows from his bank account and/or that flows |
| regularly. | | | | into his various funds. |
| His best investment strategy, according to his | | | | In the beginning he should have equal amounts |
| brother Jim whom he trusts, involves opening a | | | | invested in each of his three investment funds |
| mutual fund account with a major no-load fund | | | | fed by the money fund. Over time this will change |
| company. This is where you get the best mutual | | | | as all three will perform differently. The |
| fund investment bang for your buck, according to | | | | short-term bond fund is the safest of the three, |
| Jim, because the cost of investing is low. Plus, | | | | paying higher dividends than the money market |
| with a mutual fund investment you get | | | | fund but less than the intermediate bond fund. It |
| professional management as part of the package. | | | | should not fluctuate much in price. |
| Once his account is set up Jack will invest money | | | | At the other extreme, the stock fund is the |
| systematically into four different mutual funds: a | | | | riskiest and it has good growth potential. The |
| money market fund, a short-term bond fund, an | | | | value of this mutual fund investment will fluctuate |
| intermediate-term bond fund, and a large-cap U.S. | | | | considerably. |
| stock fund. To lower the cost of investing even | | | | To keep risk at bay, once a year Jack will |
| more, the stock fund and bond funds will be index | | | | rebalance his portfolio as part of his investment |
| funds. | | | | strategy. He wants to keep his stock fund and |
| Remember, Jack is risk conscious. So, here's how | | | | two bond funds approximately equal in value. To |
| they set things up. Jack opens his mutual fund | | | | do this he simply moves money around between |
| account by putting a few thousand dollars into a | | | | these three funds. |
| money market fund, where he has high safety | | | | His money market fund is simply his cash |
| and earns interest in the form of dividends. Plus, | | | | reservoir, and it gives him added flexibility. The |
| this gives him added flexibility in managing his | | | | other three funds provide higher interest income |
| account. | | | | and growth (the stock fund). |
| They set it up so that every month a few | | | | This investment strategy is especially attractive in |
| hundred dollars will flow from his bank account to | | | | a tax-deferred or tax-free account like a |
| his money market fund, which will be used as his | | | | traditional or Roth IRA, because income taxes are |
| cash reservoir. Then, Jack instructs the mutual | | | | not an issue until money is withdrawn from the |
| fund company to have money flowing each | | | | account. |