The Investor's Guide to Fidelity Funds - TangoTools

The Investor's Guide to Fidelity Funds

Winning Strategies for Mutual Fund Investing

Peter G. Martin

M.Sc. (Applied Physics), Durham, U.K. and

Byron B. McCann

M.B.A. (Finance), Stanford

Second Printing Venture Catalyst Redmond, Washington

To America, for fostering the best investment climate in the world; and Japan, for reminding us of the importance of saving. To Fidelity Investments, for the mutual fund innovations that have revolutionized individual investing. To our families, for putting up with so much for so long.

Copyright ? 1998 by Venture Catalyst, Inc.

All rights reserved. Reproduction or translation of any part of this work beyond that permitted by Section 107 or 108 of the 1976 United States Copyright Act without the permission of the copyright owner is unlawful. Requests for permission or further information should be addressed to Venture Catalyst Inc., 17525 NE 40th Street, Suite E123, Redmond WA 98052. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers.

Publisher's Cataloging in Publication Data

Martin, Peter G. and McCann, Byron B. The Investor's Guide to Fidelity Funds p. cm. Bibliography: p Includes index ISBN 1-881983-03-X 1. Mutual funds--United States. 2. Fidelity funds (Firm)

I. Martin, Peter G. II. Title.

Book composed using ScenicWriter Printed in the United States of America

Originally published by John Wiley & Sons, Inc. 1989 as "The Investor's Guide to Fidelity Funds" This second printing published by Venture Catalyst, Inc. 1992

CONTENTS

WHY READ THIS BOOK? vii 1 INTRODUCTION 1 2 WHY INVESTORS CHOOSE MUTUAL FUNDS 5

What Is a Mutual Fund? 5 Selecting a Fund Family 7 Advantages of Mutual Funds 9 Mutual Fund Innovations 11 Disadvantages of Mutual Fund Investing 13 Conclusions 15 3 REALITIES OF INVESTING 17 Financial Planning Basics 17 Real Growth Comes from the Stock Market 21 Risk and Return Go Hand in Hand 21 Random Events Trap the Unwary 22 Psychology Drives the Market 24 Beating the Market Is Difficult 25 Conclusions 28 4 THE FIDELITY FUND FAMILY 29 Industry Sector Funds 30 International Equity Funds 34 Capital Growth Funds 35 Growth and Income Funds 37 Taxable Bond Funds 40 Municipal Bond Funds 44

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CONTENTS

Money Market Funds 45 Conclusion 47

5 DEALING WITH FIDELITY 49 Connecting with the Organization 49 Opening an Account 50 Purchasing Shares 54 Monitoring Your Account 56 Switching Between Funds 56 Making Redemptions 59 Using the FAST System 59 Opening a Brokerage Account 63 Fidelity Telephone Numbers 66 Conclusion 67

6 RETURN, RISK, AND PERFORMANCE 69 Measuring Total Return 69 Causes of Risk 71 Conventional Risk Measures 73 Exposure and the Ulcer Index 77 Risk and Reward 81 The Real Meaning of Performance 84 Maximizing Wealth 86 Implications for Investment Strategies 87

7 PASSIVE INVESTMENT STRATEGIES 89 Buy-and-Hold 89 Dollar Cost Averaging 91 Market Timing with Moving Averages 91 Testing the Passive Strategies 94 Conclusion 96

8 BOOSTING PERFORMANCE THROUGH ANALYSIS 97 Fundamental Analysis 98 Technical Analysis 101 Combining Fundamental and Technical Analysis 106 Applying Results of Analysis 106 Investment Newsletter Strategies 108 Conclusions 114

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