I didn’t want to just put my money back into CD’s because the S & P 500 index averaged about a 13.2% annual return in the decade of the 1980’s and about a 16.1% annual return in the 1990’s.(1) With all the stock market money flowing into corporate 401K accounts, senior retirement portfolios, the increasing number of women in the workforce starting to invest and a general strong consumer demand for mutual funds in the past 15 years, I found it hard to believe the stock market would just collapse. Plus, when the stock market is in crisis, the Securities and Exchange Commission will make new laws to combat corruption in the industry like the recent Sarbanes-Oxley Act of 2002. However, this doesn't mean if your stock or mutual fund went down -30% in value that the SEC will give you your money back.

For more information on securities laws, please visit their website at:

http://www.sec.gov/about/laws.shtml

Before I made my selection for new investments, I used the S & P 500 index yearly returns as a comparison guide to select my next mutual funds. In the year 2000, it was down -10.1% in 2001, it was down -13% and in 2002, it went down -23.4%. The tech heavy NASDAQ was down -39.3% in 2000, down -21.1% in 2001 and -31.5% in 2002. (1) I decided to select the mutual funds below because they didn’t lose as much as the S & P 500 index in the 2000-2002 down market.

Here's how the same funds did the next 4 years:

Vanguard Index 500 went up 59.65% during the 2003-2006 time period. The one common factor with my new fund selections is they all had small amounts of tech stocks in them and they had either a value or blend investment strategy. A lot of Investors seemed to dump the very volatile and over priced tech stocks for more conservative value stocks and REIT funds. Gold mining and energy related stocks produced as well. International funds did well because the US dollar lost value to the Euro and Canadian dollar. For an explanation of the different mutual fund types, please go to Yahoo Finance:

http://finance.yahoo.com/funds/types

The 2003-2006 total return figures are actually lower than what you would get if you reinvested the dividends and year end capital gains. For example, If you invested $10,000 in DODGE & COX STOCK, had returns of 32.34%, 19.17%, 9.37%, 18.53%, and just redeemed the growth of the shares at the end of each year for extra spending money, you would still have only $10,000 at the end of 4 years. If you let your dividends and gains reinvest and don't cash in any shares, 4 years later, your money would be worth $20,444.88. (2)

PART 3

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