Creators Syndicate

FIGHT BACK!  BY DAVID HOROWITZ 

New Protection for Fund Investors 

        Why have mutual funds become so popular over the past  few
years? Because they offer a reasonable balance between  risk and
return. 
        In terms of easy access to your money and investment 
protection, it's hard to beat a federally insured bank  savings
account. The risk is low, but so is the return.  Mutual funds, on the
other hand, offer higher returns because  the money is invested in
stocks, bonds, Treasury bills and  other securities. 
        The value of those securities may rise and fall with the 
market. But since the fund portfolio contains dozens or even  hundreds
of different stocks, swings in individual stock  prices are buffered by
the performance of other stocks in the  portfolio. Mutual funds are
also professionally managed,  which further reduces investors' risks. 
        That balance between risk and return is what makes one  fund
different from another. Most are built around some  specific investment
goal, such as annual income or long-term  growth. Some funds specialize
in particular types of  investments like high technology, overseas
stocks, utilities  and tax-free municipal bonds. There are also funds
dedicated  to promoting social causes and environmental protection. But
whatever the fund's goals, the basic rule of investing still  applies:
the higher the return, the greater the risk. 
        With more than 5,000 mutual funds competing for  investment
dollars, the Securities and Exchange Commission  and the National
Association of Securities Dealers have  finally drafted some guidelines
for mutual fund advertising.  These new rules will help investors make
sense of conflicting  promotional claims by those fund managers who say
they are  industry leaders. 
        "We're No. 1!" Who says? Under the SEC's new  regulations, any
fund that claims to rank high among its  competitors in earnings must
disclose in its advertising who  did the ranking and what criteria were
used. Was the fund No.  1 last year, or over the past 10 years, or over
the past 30  years? Funds are forbidden from using rankings compiled by
themselves or related companies. Nor can they claim to be  first in
their field based on size alone. 
        Even so, investors should be wary about basing decisions  on
such claims, however well they are documented. Past  performance is no
guarantee of future earnings. Funds that  advertise high returns may be
investing in high-risk  securities. Is that what you want? 
        You have to go back and compare the fund's investment  goals
with your own. What level of risk are you willing to  take for higher
returns? Are you more interested in long-term  growth or short-term
income? What's the purpose of your  investment? Is it a retirement
fund, college fund or monthly  income fund? 
        You should also consider each fund's history. The top 50 
national funds have all been in business for years and have 
established records for earnings and investor protection.  Newer funds
may offer higher returns or narrowly focused  investing strategies, but
the risk involved is also greater. 
        Don't overlook convenience. Is the fund managed locally?  Does
it have a toll-free phone number where you can contact  fund managers
with questions about your investment? Would you  rather deal with an
investment officer at your own bank or  directly with the fund
managers? These are all key questions  in deciding which fund (or type
of fund) you want to invest  in. 
        If you have any questions or comments, please write to  David
Horowitz in the Consumer Forum+ (go FIGHTBACK). 

COPYRIGHT 1994 CREATORS SYNDICATE, INC.