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(1/23/00)
You're currently invested in an S & P 500 Index mutual fund and you've been satisfied with its consistent 20% - 28% average annual return year after year, but now you feel like you're missing out on all those hot stocks generating "mega" returns. However, the uncertainty of knowing which companies are good and the fear of loss have kept you out of those flashy momentum stocks. Consider allocating a portion of your investment portfolio in a mutual fund that specializes in a hot sector such as high tech or the Internet. Why would you invest in a sector or specialty fund? Because specialty funds offer you the opportunity to participate in a hot sector while lowering your risk through diversification. As with an S & P 500 Index fund, your monies are invested in several different stocks and your investment is managed by professionals that specialize in that particular sector. These fund managers spend hours researching all the cutting edge technology and hunting out the next explosive trend. They talk to CEOs of potential powerhouse companies and look deep into management. They become your "Sherlock Holmes" uncovering the next best thing since sliced bread….or Microsoft before it became the number one technology company. They go where no average investor can go! All this for a reasonable management fee.
If you are looking to increase your overall annual return, have a long term investment horizon and are willing to stomach some volatility, divide your investment portfolio between an S & P 500 Index mutual fund and either one or two sector funds that you believe have potential for tremendous growth. The S & P 500 Index should represent about 80% of your portfolio and the remaining 20% can be allocated between one or two hot sector funds.
For a no load S & P 500 Index fund with a low minimum initial investment ($250) try Munder Index 500 Class B (telephone number 800-438-5789) (symbol MUXKX). It has consistently generated a 20% average annual return. (click here for more details about Munder 500 Index) A good high tech fund with a $1,000 minimum initial investment would be Invesco Technology II (telephone number 800-525-8085) (symbol FTCHX). The fund returned 133% last year and has a five-year average annual return of 42%. Telecommunications was a hot sector last year and will continue to outperform. Invesco also has a good telecommunications fund call Invesco Telecommunications Fund that has produced an average annual five-year return of over 40% and returned over 100% last year (telephone number 800-525-8085) (symbol ISWCX).
Investing in a hot sector fund is not meant to replace your core investment strategy, but can be used to supplement your returns. Although many of these hot companies are increasing dramatically, there are higher levels of risk attached. However, if you have a long-term horizon, you can allocate a portion of your investment in a higher yielding mutual fund and this, coupled with your core S & P 500 Index mutual fund can help bump up your overall annual returns…and higher returns is the goal.
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