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Don't you love those ads in the paper and
on TV saying how much their mutual fund has made
over the past 3, 5 and 10 years? I get all
choked up. Hind sight is always 20/20. If Mr.
Investor had known that he would be in clover
today, BUT ..... It seems that during the past few months, in
fact for more than a year 90% of all mutual
funds are lucky to be even. Even. Even doesn't
cut it so what can an investor do when the
market starts down as it has been doing lately?
The Dow Jones Industrial Average has lost 500
points. What if it drops like it did in 2000
when the NASDAQ lost 78% of it value and 7
trillion (yes, that's a T) dollars. Will your broker call you to tell you to
sell? Did he tell you that last time? According to
statistics less than 2% of Wall Street
recommendations in that bear market were to
sell. Is the tune going to change this time?
Hardly. You are on your own again. Either you
take charge or you will lose your money. Some people run to Morningstar for mutual
fund recommendations. If you will look at their
5-Star Mutual Funds you will see they sank into
the slime along with all the others.
Morningstar follows the Wall Street line so you
can't rely on them. Who can you rely upon to protect your
investments? One person. YOU! Don't tell me you can't do it because you
don't know enough. Obviously any blind hog
could have found more acorns in the years 2000
to 2003 than your broker. The first consideration is protection of what
you have now. If the fund you bought at $20
went to $40 would you be happy if it went back
to $20? Not really. So you have to decide right
now how much you are willing to give back. One
of the basic rules of thumb is 10% from its
highest closing price. If it drops below $36
sell it because you don't know how far "down"
is. This is protection against a major loss. If
investors will look at the history of the funds
they own they will see that a 50% loss is
common and that means the investor would have
to earn 100% to make up for that loss. Fund
managers usually aren't that smart. The professionals let the market tell them when
to get in and more importantly when to get out.
The great secret of the stock market is not
buying. It is selling. Investors who have an
exit strategy are those who end up with big
money. There are many good exit methods, but
they must be put into place and acted upon when
the appropriate time occurs. There are many good long term investment plans
and all of them have periods when the best
investment is cash. Al Thomas' book, "If It Doesn't Go Up, Don't
Buy It!" has helped thousands of people make
money and keep their profits with his simple
2-step method. Read the first chapter at
http://www.mutualfundmagic.com and discover why
he's the man that Wall Street does not want you
to know. Copyright 2006 All rights reserved
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