Volume 67: To submit a question to MFI's panel of experts, please write to us.

This week's panel:

Greg Hilton Gregory Hilton is a Fee-Only® financial planner in the heart of Chicago. He is an attorney with a masters degree in taxation, a CPA, and a certified financial planner (CFP). Although his services are comprehensive he concentrates on the tax and investment issues of retirement and estate planning. His registered investment advisory is Cambridge Consulting, 500 N. Michigan Ave. – suite 1530, Chicago, IL 60611 (312)527-5171 E-mail: cc@cambridge.cnchost.com

Frank Armstrong Frank Armstrong is author of Investment Strategies for the 21st Century, published here, and president of Managed Account Services, Inc., a fee-only advisor specializing in global asset allocation strategies utilizing no-load mutual funds. Frank is a Certified Financial Planner (CFP) with 24 years' experience helping investors build wealth. The firm, an SEC Registered Investment Advisor currently manages in excess of $60 million for over 140 clients worldwide. Visit Frank's Managed Account Services, Inc. for more information about the Alternative to Business as Usual on Wall Street or call 1-800-508-8500.

Questions and Responses

• How do I find out what a fund earns without reinvestments?
• Where can I get unlimited check-writing privileges with a mutual fund?
• Why did growth outperform value in 1998?
• Can an American living abroad invest in U.S. mutual funds?

• Previous volume
• Next volume

---

How do I find out what a fund earns without reinvestments?

Q: If you want to invest your cash when you retire in a mutual, how can you know what you would make without reinvestments of dividends and etc. They always show the percentage with reinvestments. I want to be able to have a monthly income from this but nobdy seem to want to tell me how to figure this. Like if the funds say they made 23% with reinvestments, what was it without reinvestments?

A (Frank): Mutual fund performance is most often quoted at total performance. By definition, that includes reinvestment of both long term capital gains and ordinary income dividends. To get the net performance, just subtract out the total dividends. You can call any fund company and they will be happy to give you both the gross and net performance figures for all their funds.

Few equity mutual funds pay dividends sufficient to fund a retiree's income needs. So, if you need a reliable source of income you should consider a combination of bond and equity funds that will provide you with sufficient total return to meet your goals, with a level of safety consistent with your risk tolerance. Then have the dividends from both types of funds paid out in cash, and sell enough shares to cover any shortfall in your income needs.

---

Where can I get unlimited check-writing privileges with a mutual fund?

from Wade

Q:We are keeping average balance of $8-10k in our family checking account with a bank. Are there mutual funds that offer unlimited check-writing? My goal is to put this $10k in a high-yield mutual fund rather than just get the 4% interest from a checking account. So far the funds that I enquired that offer check writings are all money market funds.

I have good income and can weather a 10% drop in a fund. Our average monthly checks total about $5K so even if the $10k balance were to drop to $9k, we'd still have enough money to cover living expenses.

A: (Greg) I cannot vouch for all 10,000 plus funds but I can say that the only funds I know of that have check writing privileges are money market mutual funds. What other funds would have the liquidity to provide the kind of access you want? - even short term bond funds have to be invested.

You are on the same track that I was on 2 years ago. I found the high yield checking that I was looking for in a Schwab One account. Unlimited checks can be written for any amount you want, the interest has hovered around 4.9% until recently and there are no monthly fees. This is just between you and me (because they are supposed to be used as investment accounts and not bank accounts) but I have been using these for both my personal and business checking for some time.

---

Why did growth outperform value in 1998?

A: (Frank) Over long periods of time, value has outperformed growth as an investment style, and seems to have done so without any additional risk (at least if you measure risk by standard deviation of expected returns). In the short run, styles come in and go out of favor. Investors often have a herd mentality coupled with short attention spans. They seem unable to focus on more than one thing at a time. It's not unusual for these cycles to take years to play themselves out. For instance, value has under-performed growth and large companies have outperformed small ones for several years.

However, real rates of return have been remarkably stable over quite a long time, and it appears that the stock market is a self regulating, self correcting mechanism. There seems to be a natural order of things based on fundamental values where risk and reward are directly related. Whenever a portion of the market strays very far from its previous returns, it "corrects" or "reverts to the mean". The timing of these reversals cannot be predicted, but they often are quite dramatic. So, investors are wise to consult the longest term data that is available when forming their investment policy. Then they must exercise patience and discipline. So, I wouldn't give up on value investing. The worm always turns.

---

Can an American living abroad invest in U.S. mutual funds?

from G

Q: I'm an American citizen living overseas, and have been told by a very prominent mutual fund company that they cannot accept investments as I live abroad. I understand that they are registered to do business in the U.S., but my investment monies and bank and family are in America.

Is there anyway to accomplish my investment goals -- in U.S. funds -- while living abroad?

A: (Greg) I do not know enough about the Investment Company Act of 1940 to know why these brokerages are so fussy about sending statements to a foreign address but I have had clients with your problem. This is what we did:

Use your family home as your domicile. Your domicile is wherever you have an intention to return after a temporary absence. You should then properly use your domicile as the address for your account. Your family can forward your statements to you but you would also be able to stay up to the minute and trade over the Internet.

---

Important Disclaimer

Investing in equities involves a serious principal risk, and no assurance can be given that the techniques described here will be successful. Returns vary and you may have a gain or loss when you sell your shares. Past performance is no guarantee of future results. Index returns shown are historical and include the change in share price, reinvestment of dividends, and capital gains. Indexes are unmanaged and do not reflect the impact of transaction costs. Transaction costs would have reduced the total returns.

International investments, especially those in emerging markets, entail greater risks (as well as greater potential rewards) than U.S. investing. These risks include political and economic uncertainties of foreign countries, as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less-established markets and economies.

Lastly, the questions and responses set forth here are for general informational purposes only and are not intended to substitute for performing your own independent research or contacting your financial or legal professional before making any investment decisions. We make no guarantees as to the performance of any investment strategy you choose and are not responsible for any losses you might incur.

Comments? Criticism? Suggestions? Talk to us.

The critics love Mutual Funds Interactive. Find out what they're saying about us.

Contents | Profiles | Features | Expert's Corner | Newsgroup | Search MFI

Disclaimer: Brill Editorial Services provides Mutual Funds Interactive as a service to Internet users. We do not imply approval of listed destinations, warrant the accuracy of any information set out in those destinations, or endorse any opinions expressed therein. The author is not a financial advisor, and the material presented is for informational purposes only and does not imply an endorsement of the funds mentioned. Information is deemed accurate as of the dates indicated. Any questions or comments regarding this policy or Mutual Funds Interactive should be directed to BES. Like Mutual Funds Interactive, other Internet destinations operate under the auspices and at the direction of their owners, who should be contacted directly with questions regarding those sites.

 

Mutual Funds Interactive, The Mutual Funds Home Page, FundWorld, and FundLink are service marks and the text herein is Copyright © 1995-98 Brill Editorial Services, Inc. All rights reserved.