We hope this helps you reallocate your IRA properly. You may wish to bring in a professional because a big part of your retirement success will be dependent on proper initial allocation as well as sticking with your plan. We have found many retired investors leaving the equity arena, when in fact a "total return" approach (some growth) would make better sense. You must decide if you are making a market call or a life cycle adjustment. Reductions in your equity position due to upcoming distributions and less recovery time seems appropriate. But a market call on a Y2K drop or because of a high market valuation is another matter. For example, if someone thought the markets were too high in 1995, and got out - as many people actually did - now the market is up over 150% from where they sold. To put this in proper perspective, investors would need a crash thirteen times the magnitude of Black Tuesday in 1929 today to break even. Many stocks are overvalued and should be avoided, but a more conservative equity stance, for the equity portion of your IRA, may be all that is needed.

I have invested in a mutual fund for my children's college (Washington Mutual...) through Edward Jones and last year earned 6.7% after fees etc. This seems quite low. Does this seem like a low return to you?

Thanks for visiting soundinvesting.org and asking about your Washington Mutual Fund investment. The fund has had a difficult first year for you and its three year record is also below average. Through 2/29/00 its one year performance was -6.72% versus the S&P500 +11.73, on a three year your fund only averaged 10.10% less than half of the S&P500 21.78% three year average. In addition you probably paid a sales load or have surrender charges now to get out. After visiting soundinvesting.org you probably realize the immediate disadvantage of buying loaded funds particularly when planning to make subsequent investments for your children. I hope this helps answer your question because our goal is to be your source for objective financial information. Good luck.

I am just beginning to learn about investing and have found soundinvesting.org extremely helpful. I started with some dollar cost averaging in a few no-load/low cost funds.

Thanks for visiting soundinvesting.org we are glad our website was helpful and informative. Please let your friends know about our objective and not for profit website. After all, what better way to get investment advice. If you have any specific questions let us know, until then follow our suggestions of getting complete details in writing on the risk, total costs and specific limitations on each investment before you invest. New material is continuously added to soundinvesting.org, so visit often.

I am impressed with your site and would love to see even more mutual fund information. Also, how do you decide what info to add? It is the first purely informative site that does not try to sell you on something.

Thank you for visiting soundinvesting.org. Because of the many requests such as yours on even more current suggestions on selecting mutual funds we have added a new update in the mutual funds section. Thanks for your suggestion and I hope this new article gives you some solid objective information. Please tell your friends and associates about soundinvesting.org because this educational non-profit site is aimed to meet your needs.

On February 27th I was listening to Radio station 570 KVI in Seattle and was interested in a fund being discussed. I thought I heard it called the Bonnel Growth Fund and the person being interviewed being called Art. They also spoke of "sound investing," and would like to have your comments on the fund.

The husband/wife team of Art and Wanda Bonnel manage the Bonnel Growth Fund out of their home in Reno, Nevada. Like many funds that have experienced exceptional returns (up 81.4% in 1999), Bonnel is concentrating on technology stocks. In our opinion, the rapid rise in technology and biotechnology stocks has been accentuated by the excesses brought on by momentum and margin investors. This means that funds that focus on these sectors may be vulnerable to a significant sell-off and you may wish to dollar cost average or hold off investing until these sectors experience weakness. The demographics for both sectors is very favorable over the long term and investors that buy at current inflated levels must have a stomach for volatility and a mandatory long term perspective. Some of the other leading funds that fall under this technology/biotechnology category make even Bonnel's 81.4% in 1999 look modest (and that is scary!) These funds include: Fidelity Select Technology +184%, Firsthand Technology Leaders +210%, Rydex OTC +117%, Invesco Technology II +230%, Northern Technology +209%, T. Rowe Price Science & Tech +125%, Presdner RCM Biotechnology +330%, Munder NetNet +166% and Van Wagoner Technology +244%. The past four weeks (through Feb 29, 2000) performance ranges from a low of 12% to an amazing 65% gain -just for February! It is important to understand the risk before investing in any mutual funds - as more and more funds have private placements, warrants & derivatives that are illiquid and very difficult to value as well.

What is a tracking stock?

Is a stock that "tracks" the performance of a single unit within a larger company. They have never been more popular as many companies are issuing tracking stock for their internet related or wireless operations. They are utilized most often to highlight assets that would normally be buried in a corporate balance sheet, thus bringing to light these once unnoticed or under-recognized operations. Many times these tracking stocks can enhance value by becoming a comparable to their pure play counterparts. Inflated tracking stocks can therefore more easily attract key employees, outside investors, Wall Street analysts, and make it easier/cheaper to make synergistic acquisitions. There are also caveats to tracking stocks that should be noted and those include bookkeeping strategies since the parent usually controls the tracking stock many times losses can be skewed to the tracking company lessening the tax burden of the parent while getting the losses off the parent's books. Tracking stocks don't own the assets nor do they usually carry voting privileges or even have their own board of directors. There have been numerous cases in which the tracking stock shareholders have been unfairly treated because of this, including when Ziff-Davis issued a tracking stock for its online subsidiary only to use most of the $2.5B IPO proceeds to pay off the parent company's debt. In many of the proxies something to the effect of "the parent company's board has sole discretion to make decisions that could favor our business at the expense of another." So just like with any investment that is discussed in soundinvesting.org it is critical to analyze all aspects of a tracking stock before investing.

Obviously you are referring to the plunge in the high tech stocks (particularly dot-coms), and brokerage firms like PaineWebber now outsourcing the money management activity of their own funds (after underperforming YTD 2000, 1 year, 3 year and 5 year periods) and most recently the two Heartland municipal funds had single day losses of 70% and 44% after marking down positions that were incorrectly accounted for due to obscure holdings not being priced properly. The mission of soundinvesting.org is to provide objective, educational information to help investors avoid the sales hype so typical in the investing world today. These warnings prove very valuable to investors that avoided such problem areas after reading our words of warning. Our latest thoughts on the problems at Janus Funds follow. (As far as publicizing our education site that is where we need your help - if you find any part of this newsletter of interest please tell or e-mail the article to a friend). Our goal is to provide you with the most objective information, answer your specific questions and become your source in today's complicated investment environment.

Janus has a heavy concentration in high multiple technology & communication stocks that had performed exceedingly well over the past three years or more. Such momentum investing leaves the bulk of its assets very susceptible to a market correction (or bear market). Their exposure is much larger than most investors realize because Janus breaks down their sectors in much more detail than other funds (thus making tech exposure seem smaller until you add all related sectors together). Even Janus admits that their past huge inflows of new investment dollars can not continue to grow as it has been, but any prolonged correction or bear market in technology stocks would have a spiraling negative effect in terms of both the growth of new investors and more importantly, on investment performance.

Our second concern with Janus is with the loss of James Craig who as their chief investment officer and a critical component of Janus' overall success over the years. Their various money managers' morale was already being tested with the bitter fight between Kansas City Southern (Janus' owner) regarding the spin-off of the company into Stilwell Financial. We feel Craig's departure will put added responsibilities and pressure on current managers only adding to growing operational and morale problems. In any event it was a good time to reduce investor exposure to Janus as the likelihood of continued outperformance has been seriously dampened.

Our goal is to educate rather than give specific investment advice, but our analysis on Bonnel reflected our thoughts on all these aggressive mutual funds that we found chasing the NASDAQ high flyers at unprecedented valuations. What made matters worse was that Bonnel has over 77% of its holdings in technology (even though it was not specifically a tech fund). We decided to bring this to the attention of our soundinvesting.org readers because many investors did not understand the risk in buying this fund back in Feb of 2000. The fact that it did not reflect this risky tech exposure in its name and that it had high expenses only hastened our decision of letting investors know of the excessive risk they were taking by buying such a fund.

First of all, we stand by the facts in our analysis of the excessive costs of Class B funds and feel they are sold for larger accounts for only one reason the broker gets paid a higher flat percentage commission rather than the declining commission scale of most Class A funds. The Securities & Exchange Commission must be beginning to agree with us because they are looking at restricting the sale, without appropriate disclosure, of such funds for accounts over $10,000. Secondly, the table below best illustrates the performance statistics from the last two years. The key to all of this is understanding the risk you are taking with each and every mutual fund you buy:

It seemed to have been a smart move to get more conservative especially at the time of the FAQ in Feb. 2000. Our goal is not to make market calls but to educate investors to better understand the risk they are taking because many brokers/advisors do not detail the risk or costs until it is too late. By the way, with your broker's final comments that the aggressive mutual funds he sold you will rebound by springtime - we disagree with that statement as well because too many investors own such aggressive funds and speculative tech stocks so it will probably take a much longer time to rebound. The numbers in the table look even worse for aggressive investors after considering the losses of Janus Twenty and ProFunds UltraOTC -16.5% and -40.2%, respectively, so far during the first two months of 2001. A springtime rebound is wishful thinking, in our opinion, for most tech related funds unless your broker is talking the spring of 2002 or 2003.

The mutual fund research firm Morningstar, on the other hand, is totally revamping their mutual fund rating system this summer. They are being forced to after their current system completely let subscribers down by being purely momentum motivated. Thus, their top rated 5 star funds were all technology and telecom funds that met investors fancy 2 1/2 years ago. This led to their subscribers pouring money into the Janus and Firsthand Funds that grew to phenomenal popularity. Those funds were all buying the same stocks which drove them higher which led to more money flooding into the funds which led to them bidding these same stocks (Nokia, AOL and Cisco) even higher and so on and so forth. Back in November 1999, we warned about such funds and the bubble being built in technology stocks in general and the dot-com stocks in particular. That is what pure analysis is all about - paying attention to such moves and taking profits when prices begin to get too carried away and buy areas where sentiment and expectations are low. We do not know if Morningstar's new system will be able to differentiate the overblown from the undervalued, but all we can say is it is about time such rating services begin to look at the future ratings rather than recommendations solely based on absolute past performance.

An example of this is the international funds.

After severely outperforming in both the 1970's and 80's, international stocks have dramatically underperformed since 1990. Over this past year we have emphasized that investors seek select international exposure for the balance of this decade. It is easy to see by the bar graph below why the majority of investors have shunned international investors but this is the time (after many years of underperformance) that investors should focus on such investments. Obviously your goals, objectives, risk tolerance and specific time frame are all important factors before deciding whether to invest in mutual funds in general and in deciding which mutual fund in particular.