If you missed the big gains in...


If you missed the big gains in stock prices since last October because you doubted the market's strength, you may wonder about buying into a stock fund now.

Such thoughts aren't surprising, with stock price averages near record highs. Some experts speculate about the likelihood of another market drop soon. Others say they believe that the market's momentum will carry it higher. Of course, no one really knows.

So what do you do?

First, consider whether a stock fund -- any stock fund -- would be right for you at this point in your life. Stocks, on the average, have outperformed other investments over time, to be sure. But risks are always associated with them -- and, therefore, with stock mutual funds.

To hold down the risks, think in terms of investing for five years or more. While there's nothing guaranteed about five years, that should see you through a long down market and well into a recovery.

Second, remember that prices of stocks are determined, largely, by trends in corporate after-tax profits. In the aggregate, these have been flat or down since before the recession.

Looking ahead five years, as the U.S. economy recovers from recession and resumes its expansion, you can expect U.S. corporate profits to resume their long-run growth.

So, it may be rewarding to choose a fund that emphasizes growth and that is concentrated in stocks of corporations picked on the basis of their actual -- not forecast -- earnings momentum.

Twentieth Century Investors is one family of no-load funds using this approach.

Since 1971, its two largest funds, the $3.8 billion Twentieth Century Select and $2.6 billion Twentieth Century Growth, have been managed in accordance with a strategy that's easy to state, if not to pursue.

For Growth's portfolio, it has chosen stocks of companies, in VTC operation three years, whose earnings and sales revenues were rising at increasing rates. They could pay dividends but didn't have to.

For Select, companies also had to pay dividends.

In both cases, management decided to remain fully invested in qualifying stocks -- that is, not to maintain significant cash reserves.

Economic weakness has made it difficult to find companies with accelerating earnings in a data base of 7,000 U.S. and 2,500 international companies, says Robert C. Puff Jr., chief investment officer. Nevertheless, his team found them in health care, food, software, toiletries, detergents and pollution control equipment.

Because funds that remain fully invested in stocks, such as the Twentieth Century group, tend to be more volatile than other equity funds, they are not for everyone. For those who can accept their volatility, it usually makes sense to invest in them gradually by dollar-cost averaging -- that is, investing a fixed sum at regular intervals, regardless of market conditions.

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