Funds That Show Power of Just One
As the Dow Jones industrial average hurtles toward 10,000, putting journalists in a quandary about whether to use a comma, investors are pouring more and more money into mutual funds -- a record $37.5 billion in net new cash in March. In 1980, fund investments totaled $100 billion in 12 million accounts; today, $5 trillion in 170 million accounts.</br></br>Still, the majority of Americans have exactly zero dollars invested in the stock market. Some of them simply don't have the money, but many others are confused and scared, and don't know where to begin. They think they need special expertise, and they worry about being burned by unscrupulous brokers or stock manipulators. That's a shame, considering how easy it has become to own stocks and how fair and efficient our markets are.</br></br>The best way to get into the stock market is to buy shares in an equity mutual fund, which is a portfolio of stocks chosen by a professional manager. When you own a share in a fund, you own pieces of all the stocks in the portfolio. While I think it's a good idea to own three or four funds, it's possible -- even prudent -- to own just one. But which fund? That is this week's question, both for investment novices and for more seasoned mavens who want to ponder an interesting intellectual question.</br></br>Here is what I want in just-one-fund: relatively low risk; broad exposure to stocks, including at least a few international ones; strong, consistent performance; and a seasoned manager. I'd like to beat the market, but with few unsettling dips. The ideal fund would not be too big. New research from Morningstar Mutual Funds shows that returns decline as oversized large-cap funds (but, curiously, not small-cap funds) grow to behemoths. Also, expenses should be reasonable, and turnover (which boosts tax bills) should be relatively low.</br></br>One of the few funds that meets these criteria is Dreyfus Disciplined Stock (1-800-645-6561), which has two of my favorite words in its title. The manager, Bert Mullins, has been running the fund since it began 10 years ago under the aegis of Mellon Bank Corp., a conservative Pittsburgh-based institution that merged recently with Dreyfus. Mellon had only a few funds, which were excellent but poorly marketed. Dreyfus had lots of funds, many of which were not stellar performers but were brilliantly sold. It was a match made in Wall Street heaven.