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Author: Dr. Scott Brown, Ph.D. Article source: http://stockszone.info/. Used with author's permission.
Mutual fund managers use fake fund names to part you from your money such that you cannot judge what a fund does by its name. Many funds have names that are outright misleading or even deceptive. In the late 1990's, for instance, during the technology stock bubble, some portfolio managers took advantage of public's desire to chase the latest fad by slapping "internet" in front of their fund names.
The chances of that happening now are possibly lower. As of July 2002, the SEC requires funds to have at least 80% of their assets in securities that their fund name implies, up from 65% previously. This new rule is forcing funds that called themselves something like the America's Government Fund to either dispose of East Asian government debt if it exceeded 20% of fund assets, or to change the fund's name.
Likewise for funds that call themselves an equity income fund but have 25% of assets in stocks that paid no dividends. More than five hundred funds have had to change their names because they failed the 80% rule. Invesco's Blue Chip Growth fund, for example, is now called just growth fund, since 60% of its holdings are in technology stocks, and many of those can hardly be called blue chips these days.
The 80% rule still allows mutual funds to invest in just about anything up to 20% of holdings. Why don't you just avoid the entire problem by buying shares of an indexed mutual fund when you only have a selection of mutual funds to select? For this reason I strongly recommend that if you can only buy mutual funds, as in the case of the 401(k), then restrict your purchases to indexed funds such as the Vanguard 500 (VFINX). The best you can do is to learn to select individual stocks in your Roth IRA or individual account. ABOUT THE AUTHOR: Dr. Scott Brown, Ph.D., a.k.a. "The Wallet Doctor", is a successful futures trader, real estate investor, and stock investor. Dr. Brown holds a Ph.D. in finance from the University of South Carolina. His 1998 articles in Technical Analysis of Stocks and Commodities were prophetic in predicting an impending stock market crash. He has helped many people become profitable investors by teaching them to look out over many years to spot stocks that are low and primed for rise in the new bull market. His second article met with approval by Dr. Bob Shiller of Yale University. Dr. Shiller is the economist that Alan Greenspan most highly regards who coined the term "Irrational Exuberance." In 1998 he shouted to the world to "get out" of the stock market but now he is shouting to everyone that it is time to "get in!" The Wallet Doctor is not only sought after for investment advice and coaching in stock investing but also in futures trading and real estate investing. Visit Dr. Brown's site at http://www.BonanzaBase.com or sign up for his investment tips at http://www.WalletDoctor.com
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