Investors who can't beat them can join them, with an S&P 500 mutual fund


November 06, 1994|By SUSAN BONDY | SUSAN BONDY,Creators Syndicate

Many people think the stock market still offers opportunities for good returns. But the question is "Which stocks should you buy?"

You can try to guess the stocks that might outperform the averages. But most people don't have the time, the inclination or the skill. Even investment professionals who spend their careers poring over facts and numbers often end up below the averages.

You can buy a mutual fund that invests in many stocks, but again, which one? There are growth funds and income funds, special situation funds and balanced funds, load funds and no-load funds, closed-end funds and open-end funds. And there are hundreds of funds in each category.When you buy a mutual fund, you are still betting on the ability of its manager to outperform the averages.

But there is another way: buying the very index that the fund managers are trying to outperform -- the Standard & Poor's 500 index (S&P 500). Composed of 500 major companies from more than 80 industries, the S&P 500 is generally regarded as the best measure of the large-company market as a whole.

According to Lipper Analytical Services, over the last 10 years (September 1984 to September 1994), the Standard & Poor's 500 index outperformed more than 78 percent of domestic stock funds. And when sales charges were subtracted out of the returns of those funds that charge a load, only 19 percent outperformed the S&P. Any way you look at it, less than 20 percent of professionally managed stock mutual funds beat this major market index on a cost-adjusted basis.

It doesn't make sense for the average investor to buy 500 different stocks, but at least three no-load mutual funds do it for you: One is Vanguard Index Trust 500 Portfolio (800) 662-7447. For an initial investment of $3,000 ($500 for individual retirement accounts or UGMAs -- Uniform Gift to Minor Account), you can buy a slice of the index.

Another no-load index fund is Fidelity Market Index fund (800) 544-8888, which requires a $2,500 ($500 for an IRA) initial investment.

The third is Dreyfus S&P 500 Index Fund (800) 225-5267. This fund requires an initial investment of $1,000 ($500 in an IRA or UGMA).


Susan Bondy founded her namesake financial services company 1980 to provide financial planning and asset management. She is a frequent guest on "Good Morning America," the "Today Show" and National Public Radio. She is the author of "How to Make Money Using Other People's Money." Write to Susan Bondy in care of The Sun, 501 N. Calvert St., Baltimore, MD 21278. All letters will be treated confidentially.

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