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There are few things in investing more difficult than picking a good mutual
fund. While buying stocks may have more risk (very few funds go bankrupt, after
all) most good companies have strategies that they stick to year in and year out,
a stable management team and somewhat predictable earnings. When you buy Jack
Welch's GE, you pretty much know what you're getting.
With funds, you don't. What emerges as a good fund one year can change radically the next: The fund manager gets lured away by another fund, the fund takes in so much money that the manager can't invest in the kinds of stocks that made him successful, or the manager himself has an abrupt change of heart and transforms from a savvy buyer of small caps to a doom-crazed short seller. We don't have any magical formula to altogether eliminate these risk factors, but we have done our best to mitigate them in our selection of "The 6 Best Funds for 1998." Senior editor James R. Hagy and staff reporter Lauren Young began by searching for funds that have invested significant portions of their portfolio in one or more of the market's most promising sectors, which we identified in last month's "Where to Invest in 1998." Then we used our proprietary screens to ensure that our candidates have posted consistently strong performance. After grilling the managers to assess their outlook and gauge their dedication to our favored sectors, we settled on a group we believe is committed to strategies that will succeed in the year ahead. We don't know of a bigger trend in the investing world than the shift toward on-line purchases of stocks and funds. While this business is still in its infancy and has more than a few kinks to work out, you simply can't ignore either the potential of this medium or the price per trade that these on-line providers already are offering investors. We approached this story in two ways: First, we asked reporters Lisa Kalis and Rob Turner to look at the impact these fledgling on-line brokerage operations are having on the way we trade today. Among their findings: On-line stock transactions generated an estimated $700 million in commissions last year, 30 percent of all discount broker commissions. Next, staff writer Nellie S. Huang surveyed and rated 12 on-line brokerage operations to determine the best and the worst of the bunch. As always, please keep letting us know how we're doing. Our adress: 1790 Broadway, New York, NY 10019; or e-mail us at editors@smartmoney.com
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