| This
chapter is probably the book’s most
important part. If I had put this
information in the beginning so that you
didn’t have to read through all those other
chapters, I could have saved you a lot of
time. But you needed a foundation of
investing smarts to understand and
appreciate what I am going to reveal to you
right now. A mid-cap index mutual fund is
the ticket to your investing success. It’s
really that simple.
Were you paying attention? Just in case,
I’m going to say it again. A mid-cap
index mutual fund is the ticket to your
investing success.
Why doesn’t everyone in the investing
business know this? Beats the heck outta me.
I’ve spoke with many, many investing pros
and financial advisors about mid-cap index
funds. Not one, not a single one, even knew
that the S&P Mid-cap 400 has out-performed
the S&P 500 (mostly large-cap companies)
these past 5 years by a significant amount.
You may hear many times that if a mutual
fund can beat the S&P 500, then this is a
successful fund with superior management.
The S&P 500 has beat over 81% of all
actively managed funds over the past 5
years. And only one fund, the Legg Mason
Value Trust, has beat the S&P 500 each and
every year for the past 11 years.
But no one, not a single fund, beats the
S&P 400 every year.
- Last year, 2001, was a disappointing
year for the mid-cap 400, earning only
1.3%. But the S&P 500 lost 12%.
- Over the last 5 years, with that
terrible 2000-2001 period, the S&P 500
has still returned a respectable average
annual return of 10%. But the mid-cap
400 has yielded an average return of
18.6% over these same 5 years.
- The mid-cap’s average annual return
for 1981-2001 was a whopping 16.9%!
So … I’m going to say this again:
A mid-cap index mutual fund is the
ticket to your investing success.
These middle size companies are not too
big, not too small, and mostly growing and
gaining market share.
It’s not that this is a guarded secret.
It’s just the collective ignorance of that
crowd of experts. See for yourself:
| |
May 1999 |
May 2002 |
|
| DOW
|
10466.93 |
9474.2 |
-9.5% |
| S&P 500
|
1281.41 |
1007.3 |
-21.4% |
| NASDAQ
Composite |
2419.15 |
1504.7 |
-37.8% |
| NASDAQ
100 |
2089.71 |
1109.6 |
-46.9% |
| NYSE
Composite |
622.26 |
540.3 |
-13.2% |
| Russell
2000 Small-cap |
438.72 |
459.1 |
+ 4.6% |
| S&P 400
Mid-cap |
395.93 |
495.5 |
+ 25.2%
|
So where do you want your money invested?
Mid-cap companies often share the
positive features of larger companies:
established products and services, solid
management, and long-term operating
histories.
The mid-cap company's long term growth
potential is generally greater than a small
company. Many medium sized companies are
still small enough to quickly take advantage
of new opportunities in the marketplace.
Since these companies are stable and well
beyond their startup phase, they generally
have the resources to finance future growth.
And as we talked about earlier, investing
in “big” name-brand companies isn’t the best
way to grow your money; too many of these
giant companies’ businesses have peaked and
they are now just fighting off the
competition.
Writing for the May 5, 2002
www.washingtonpost.com, James Glassman
called mid-caps “the Goldilocks stocks.
They’re not too big, not too small, not too
hot, not too cold. They’re just right.” He
pointed out that $10,000 invested in the S&P
500 at the start of 1999 lost money, but
$10,000 invested in the S&P 400 mid-cap
index grew to $15,653.
Other The Investing Secrets Topics:
-
Secrets of Stock Market Investing
-
Which mid-cap index fund is the best
one?
|
