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Mutual funds for dummies - Tyson E

Tyson E. Mutual funds for dummies - Wiley publishing , 1998. - 425 p.
ISBN 0-7645-5112-4
Download (direct link): mutualfundsfordummies1998.pdf
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Part II: Establishing a Great Fund Portfolio
American Century Global Gold invests only in gold companies in North America. Around since 1988, this fund has been managed by Bill Martin since 1992. Annual expenses are a reasonable 0.6 percent. This fund can be purchased through most discount brokers without a transaction charge. Initial minimum investment is $2,500 ($1,000 for retirement accounts).
« 800-345-2021.
If you expect high inflation, or if you just want an inflation hedge in case you expect the end of civilization as we know it, stick with a gold fund. But these funds have wild swings and are not for the faint of heart or for the majority of your portfolio. To illustrate why, consider this: In 1993, the Vanguard Gold fund rocketed up 93 percent, whereas in both 1992 and 1990, it lost almost 20 percent.
“Socially Responsible" Funds
Socially responsible mutual funds appeal to investors who want to marry their investments to their social principles and avoid supporting causes that they feel are harmful. These funds attempt to look at more than a company’s bottom line before deciding to commit their investors’ capital. Many of these funds consider such factors as environmental protection, equal employment opportunity, the manner in which a company’s employees are treated, and the level of honesty a company displays in its advertising.
I can certainly understand the desire to put your money where your mouth is; unfortunately, however, socially responsible funds have failed to bridge the gap between theory and practice. If you blindly plunk down your money on such a fund, you may be disappointed with what you’re actually getting. Bear with me as I explain.
The problems With socially responsible funds
The biggest problem is that the term socially responsible means different things to different people. Sure, there are some industries that most socially conscious investors can agree on as “bad.” The tobacco industry, associated with hundreds of thousands of deaths and billions of dollars of health-care costs, is an obvious example, and socially responsible funds avoid them. But most industries aren’t so easy to agree on.
For example, McDonald’s is the world’s largest fast-food (hamburger) company as well as a stock that is held by the Domini Social Equity Index, one of the more popular of the socially responsible funds. Domini considers
Chapter 9: Funds for Longer-Term Needs: Stock Funds
McDonald’s socially responsible because of its support for children’s charities, participation in recycling programs, hiring and promotion of women and minorities, and purchase of hundreds of millions of dollars in goods and services from woman- and minority-owned businesses.
But how socially responsible is a company whose business depends on beef? It’s certainly not the best for people’s health, and cattle raising is tremendously land- and water-intensive. Moreover, some may also question the screening and awarding of contracts based on gender and ethnicity. Others may blame McDonald’s for running small local restaurants out of business and contributing to the sterile “strip-mall culture” of our communities.
Or consider Toys ”R“ Us, the giant toy retailer and another stock that is widely held by socially responsible funds for many of the same reasons that McDonald’s is. But this company sells widely criticized video games that are quite violent and keep kids away from homework. Gun control supporters argue that selling toy guns encourages kids to use the real thing. Investors who agree should consider Toys ”R“ Us a socially irresponsible company — and that’s before we consider the heaps of plastic (made from petroleum) and the drive toward overconsumption that the toy industry generates.
Pick any company, put it under a magnifying glass, and you can find practices that are objectionable to somebody’s (perhaps yours) moral consciousness. Of course, that’s a poor argument for throwing in the towel. I’m simply warning you that you may be hard-pressed to find a mutual fund manager whose definition of social responsibility is closely enough aligned to yours. Keep in mind that a mutual fund, by its very nature, is trying to please thousands of individual investors. That’s a tall order when you throw moral consciousness into the picture.
It's a small ufortit after all
Even if you can agree on what’s socially irresponsible (such as selling tobacco products), funds aren’t always as clean as you would think or hope. We live in a global economy where it’s increasingly difficult to define a company’s sphere of influence. Although a fund may avoid tobacco manufacturers, it may invest in retailers that sell tobacco products, or the paper supplier to the tobacco manufacturer, or the advertising agency that helps pitch tobacco to consumers. (These kinds of definitional problems have caused the major mutual fund companies to steer clear of offering socially responsible funds. Neither Vanguard nor Fidelity offers these funds.)
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