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Investing Live: Mutual Funds
with Jonathan Kim
Value Line Issue Chief
Thursday, April 11, 2001; 1 p.m. EDT
Even in the first bear market in a decade, some find ways to win big. Several funds saw 60 percent gains in the first quarter (Chart).
Jonathan Kim is responsible for organizing a
staff of about 15 analysts and producing The Value Line Mutual Fund
Survey. He will talk about how to analyze investments and the best
performing funds.
Kim joined Value Line as a research assistant, a job in which he collected and analyzed data for the mutual fund research team. He later was promoted to analyst.
The transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control
over Live Online discussions and choose the most relevant questions for
guests and hosts; guests and hosts can decline to answer questions.
Jonathan Kim: We had a bit of technical mix up, sorry for the delay. Anyway, hello and thank you for having me.
Annapolis, Md.:
I'm interested in a magazine to guide me in my invenstment in the Fidelity family of funds. Do you have any suggestions? Thanks.
Jonathan Kim: Fidelity is one of the best mutual fund families that keep the investment public informed about their funds. Their web site (fidelity.com) is extremely useful. You can pretty much build a portfolio of stocks and mutual funds, using their Online tools. For mutual fund investors, they offer monthly performance updates and manager commentaries.
There are, however, several newsletters out there that focus specifically in Fidelity funds. Finding out may take some effort, but they are out there.
Washington, D.C.:
Got to submit this question early...
If you look at the five year return on all the funds mentioned, only one (Dreyfus Mid-Cap) beat the market over that period. Why invest in a fund like one of these when an index fund, over the long run, seems to perform better?
Jonathan Kim: It really depends on the investor and the time the investor is willing to put in his/her investments. Yes, index funds have performed better than most actively managed funds over the long haul. There are funds out there, however, that have been able to beat the odds. If enough effort is placed and you enjoy doing research, you will find funds that are able, over the long term, to outperform indexes. If you are a passive investor, index funds might really be the best option.
Bethesda, Md:
As far as sectors...I own a bit of tech, energy, and utilities. I also have an
international fund and the S&P. I am considering another sector...any suggestions? Invest more in
what I have or should I look into biotech, real estate etc?
Jonathan Kim: Well, you seem to be well diversified, but everything seems to be stock based. I'm not sure what your investment objectives may be, but if you are trying to diversify further, you might consider adding some fixed income. Otherwise, you might consider adding to what you have.
West Hartford, Conn.:
Jonathan,
Do you think the Internet sector will ever come back to March, 2000 levels? I am referring more to the optical switching, infrastructure, server side of it than the pure internet plays like Amazon or Yahoo.
Jonathan Kim: Some day they will, but that day might not come for a long, very long time. What we saw in March 2000 was a huge bubble, and when bubbles burst, recovery often takes a while. After the market crash of 1929, it took years and years for investors to make back their money. I'm not suggesting that we are going to go through another "depression," but the Internet rally got seriously overdone.
Vienna, Va.:
There are so many stocks out there. How do you analyze them? Are all stocks risky or what should I look at as a first time investor?
Jonathan Kim: The first thing I suggest all first time investors do is work on a financial plan. You have to figure out what your financial goals are going to be, as well as assess your risk tolerance. Only after setting up a framework, should one start to select the investment avenues. For first time investors, it might be a good idea to stick to index funds until getting a grasp of the financial markets.
Manassas, Va.:
I have money in a 401 K as well as mutual funds and individual stock, but as a younger person, what is it better to put more money into right now with the way the market is going?
Jonathan Kim:
Does your 401K match your contributions? If that is the case, this is where you want to put your money. Simply because it would be throwing away free money if you don't take your employer's match. Also for a younger person, it makes sense to keep plugging money into the market because your investment horizon is long-this allows you to dollar cost average.
The only reason not to invest in the market right now, is if you need the money right away.
Arlington, Va.:
I have a good (for me) chunk of money in an agressive growth mutual fund run by a
well-known company. Obviously, it has lost much of its value over the last 6-8 months. Should I
leave my money there in hopes of a recovery or transfer to a more conservative fund? Put another
way -- the fund manager of an agressive growth fund probably is NOT
continuing to dump money in very shaky dot.coms that will go bankrupt tomorrow,
right? I'm only 32, so I have loads of time
before I need the money, it just seems to be
disappearing so rapidly it's making me queasy.
Jonathan Kim: You're right the NAVs on some of these aggressive growth funds have been dropping like rocks. It seems to me like your investment horizon is long enough to allow you to hold a fund you believe in, despite poor near term performance. If you don't believe that the fund's management style fits with your investment profile, then this fund might not be right for you. However, if you still like the fund and believe in its investment style, stick with it.
Washington, D.C.:
When I select a mutual fund, is there a rule of thumb on how to determine whether a fund is too expensive, i.e., load and other expenses?
Jonathan Kim: There really is no rule of thumb. What you want to do is select a group of funds that you are interested in. Then, compare them based on their expenses and loads, and select the one that offers the most bang for the buck. There are many bad funds with high expenses and good funds with low expenses. You simply have to be an educated shopper.
Bethesda, Md:
As far as sectors...I own a bit of tech, energy, and utilities. I also have an international fund and the S&P. I am considering another sector...any suggestions? Invest more in what I have or should I look into biotech, real estate etc.?
Jonathan Kim: Well, you seem to be well diversified, but everything seems to be stock based. I'm not sure what your investment objectives may be, but if you are trying to diversify further, you might consider adding some fixed income. Otherwise, you might consider adding to what you have.
Washington, D.C.:
Thank you for taking questions today. I am about to get a substantial raise and investing (for the first time at 30 years old) in a mutual fund is one of my goals for the additional money. But there seem to be so many options and products out there that I feel totally immobilized. Where is a good place to begin and how much upfront cash do I need?
Jonathan Kim: For starters, there are funds out there that will allow you to open funds with as little as $50. The average, however, is somewhere around $500 to $2000. If you are just beginning, you should consider keeping it simple. Until you are more comfortable, this might mean buying a balanced fund. A balanced invests in a mixture of stocks and bonds, in attempt to offer a well diversified portfolio. You might also consider index funds, but for now try to stay away from following the hot hand.
Washington, D.C.:
Is there any way to see a chart that compares the daily percentage increase or
decrease of two or more mutual funds over various time periods?
I like the visual aspect of a chart, but it needs to be based on percentages to keep things apples and
apples -- is there a Web site you recommend?
Jonathan Kim: I believe that Yahoo! might be able to compare mutual funds over different time periods in graph form. I'm not sure if you'll get percentages, however. I do know that our CD product Value Line Mutual Fund Survey for Windows allows subscribers to create such graphs. And I assume that our competitors' products do also.
Jonathan Kim: Thank you all for these great questions. Unfortunately, my time is up. Hopefully, we can do this again soon.
washingtonpost.com:
That was our last question today. Thanks to Jonathan Kim, and to
everyone who joined us.
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