FUNDGRAF Investing Philosophy

There is more than one way to be a successful mutual fund investor but the primary requirements are to allocate money for investing and to find an investing method that works for you and one that suits your investment style and stick with it.

Allocate money for long-term investing.

A good start is to plan to put money into a Roth IRA for long-term investing. The stock market (and mutual funds) outperforms most other investments over the long-term. The average 60-year return for stocks = 10 to 11%, for real estate = 5 to 6%, for bonds = 4 to 5%. The higher returns are more volatile but we favor them for long-term investing.

Have a plan that works.

According to a study by Dalbar, Inc, the ACTUAL RETURN that the average equity fund investor’s account gained was a paltry 2.57% (per year average) for their study period ( from January 1984 through December 2002).! They attributed the low return to the tendency of many people to buy their fund shares when the market - and their fund type - is hot and sell them when things have cooled down. The average equity fund yielded 9.3 percent per year if held throughout their period of study. If you are trading mutual funds be sure you have a specific plan and a way to measure when to buy and sell. Use a “gut feeling” approach and you’ll probably end up with the low 2.57% return! Our model portfolio plans have worked for 22 years.

Keep commissions low.

Use mutual funds to gain diversity since they are made up of many stocks. Use “no-load” funds since they are equal to “load” funds in average long-term performance with no commission. If you are knowledgeable in mutual fund investing use a discount broker, if not weight the advice of a broker carefully– Does he have your interest in mind, or his commission?

How Fundgraf Advisory Service Does It

When Fundgraf Advisory Service started publishing in 1984 it sought to compare the performance of several methods of investing in mutual funds using 3 different portfolios.. Two portfolios used market-timing to be in “no-load” funds during bull markets and in money market funds in bear markets. Our “market signals” were used to define the bull or bear market. One market-timing portfolio used Conservative “no-load” funds and the other used Aggressive “no-load” mutual funds. A third portfolio was an “Always Invested Portfolio (later called Value-Based Portfolio) which did not use market-timing but stayed fully invested in diversified “no-load” mutual funds at all times. Later, in July 1991, the Fidelity Select Portfolio was created to use our market-timing method with the Fidelity Select Funds. The market-timing technique used for these funds was designed to give a “long-term market timing signal” which would occur less than 2 times per year. Thus even the market timing portfolios were “in the market” most of the time.

When we ceased publishing a hard copy of Fundgraf Advisory Service in September 2002 the Aggressive Portfolio had recorded a 12.3% annual compound growth rate for the 18 year period. The Conservative Portfolio was up 10.7% compounded and the Value-Based Portfolio was up 9.9% compounded for the 18 years. The Fidelity Select Portfolio had a 20.0% annual compound growth rate for its 11-year existence. We deemed all 4 Portfolios to be successful investments strategies. The market-timing portfolios gave higher results but required more attention and diligence in checking signals and acting quickly on them. The market was bearish at that time and the market-timing portfolios were in money market funds. Our Portfolios compared very favorable with market indexes --S&P500 Index had a 7.9% compound annual rate of growth rate for that 18-year period and the Value Line Index (covers 1700 stocks) was up only 3.9% compounded for that period. .

The Portfolio values and market comments have continued to be posted on the internet since 2002. The market and our portfolios have since recovered and as of this writing, December 2006, the compound annual growth rates for the 22 years since begun are generally higher -- Aggressive Portfolio = 14.2%, Conservative Portfolio = 11.4%, Value-Based Portfolio = 10.8% and Fidelity Select Portfolio = 17.9%. In June 2005, an ETF (Exchange Traded Fund) Portfolio was created with 3 ETF funds and market-timing. It is currently showing a 23% annual compound growth rate for the brief time it has been in existence. In February 2007, the Aggressive Portfolio was changed from 4 mutual funds to contain 1 Exchance-Traded Fund and 3 no-load mutual funds, recognizing the popularity of the ETF funds. We believe all of the portfolios offer a successful plan for investing and can be used by anyone comfortable with the approach. However, past performance is no guarantee of future success! Use at your own risk!


To return to CURRENT FUNDGRAF PAGE click here