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Articles > Business and Finance

The Perfect Mutual Fund

 by: Charles M. O'Melia

Is the Mutual Fund you build yourself!

The perfect Mutual Fund you build should have the objective of owning no more than 12 to 15 companies; owning shares in 12 companies would allow the diversity needed to sleep well at night and would provide a cash dividend every week of the year. The 12 companies (with staggered dividend payout dates) in your perfect Mutual Fund should not only provide a cash dividend every week of the year, each company should also have a historical record of raising their dividend every year for at least the past 8 years (to eliminate risk).

The perfect Mutual Fund would have no fees attached, every cent put into the Fund would work toward your return on investment (ROI). There would not be any commission fees, load fees, management fees, operating or advertising fees, and there would be no illegal trading practices, hidden fees abuses or any type of hidden fee. The perfect Mutual Fund would benefit only you and your family and no one else.

The perfect Mutual Fund would require a savings plan to add to your holdings every quarter, until retirement. This would allow your perfect Mutual Fund to dollar-cost average (buying the same stock at different prices through the years) into your holdings every quarter (your dividends from the companies would be doing this already, commission free; and in the perfect Mutual Fund your quarterly investments into more shares of each company would also be commission free). With this in mind, every dividend received every quarter from a company in the Fund would be higher than the previous dividend from that same company (as long as the company, at least, maintains their dividend and in the perfect Mutual Fund every company has a history of raising their dividend every year).

In the perfect Mutual Fund, when prices of your stock holdings in the Fund decline, the cash dividend income from the perfect Mutual Fund would simply accelerate. The reason for this is simple - the lower the stock prices in the Fund, the higher the dividend yields. A company, for example, may pay a quarterly dividend of 50 cents a share. Whether that company’s share price is 70 dollars a share or 40 dollars a share, the company pays a quarterly 50 cents a share dividend. At a lower stock price the reinvested dividend and quarterly investment purchases more shares.

In the perfect Mutual Fund your money is not spread too thin. For example, putting $5,000.00 into, lets say, the S&P 500 Index Fund, you would end up owning around $10.00 worth of 500 different companies. Other than the obvious fact that your money is being spread too thin, any dividends from the companies in the Index Fund could possibly be eaten up by management’s operating expenses, advertising fees and whatever other Mutual Fund fees (they’re called ‘hidden fees’)are involved.

In the perfect Mutual Fund the valuation of a stock is based on how often a company raises its dividend and the company’s stock appreciation in the market place for the past eight years. It is this valuation that earns it its place in the perfect Mutual Fund. The perfect Mutual Fund ignores all the other elaborate techniques of security analysis to find value in a stock. I guess you could call it a Jerry Maguire, ‘show me the money’ security analysis.

(Also, in my opinion, too many people spend too much time looking at technical charts trying to predict what a stock or the stock market is going to do tomorrow. Just because thousands of people on Wall Street make a living doing ‘technical analysis’ doesn’t mean you have too jump off a building, too.)

In the perfect Mutual Fund it is the belief that the dividend is the one measure a company cannot fudge. The money has to be there to pay the shareholder. The earnings, P/E ratio (trailing or forward), price to sales etc. will all fall into place if the company still has enough earnings every year to continue raising its dividend. The perfect Mutual Fund assumes that if a company, for example, that has a history of raising its dividend for the past 35 consecutive years; it must be doing something right!

In the perfect Mutual Fund the dividends from the companies are also a safety factor that will put a bottom (support) on a stock. The dividend yield/return will keep the price of a stock from falling too far, in case of a severe drop in the stock market. And, of course, in the perfect Mutual Fund, the lower stock prices accelerate your income.

The perfect Mutual Fund is real!

How to begin and invest in your own perfect Mutual Fund can be found in (blush) my book ‘The Stockopoly Plan’.

Excerpts from the book can be found at www.thestockopolyplan.com

About The Author

An individual investor with almost 40 years of experience and passion for the stock market. Author of the book ‘The Stockopoly Plan’, soon to be released by American Book Publishing.

"You have permission to this article either electronically or in print as long as the author bylines are included, with a live link, and the article is not changed in any way. Please provide a courtesy e-mail to charles@thestockopolyplan.com telling where the article was published. The author retains full copyrights!"

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