Commentary: Index funds are an option for small investors

Daily Record, The (Baltimore), Jun 27, 2002 by Julius Westheimer

Are you worried about picking individual stocks these days? Most people I come in contact with are concerned.

My suggestion: Try an index fund. "Buy index funds," says the book "Big Decisions, Small Investors."

"Unlike other mutual funds, in which the portfolio manager and a team of analysts scour the market for the best securities, an index fund manager simply invests to match the performance of an index.

"Index funds are mostly managed by a computer. Managers invest an index fund's assets so as to replicate (duplicate) an underlying index, such as the Standard & Poor's 500 stock index of large U.S. company stocks."

Size matters

"Small- and mid-cap stocks have been on a tear for more than a year, relative to their big-cap brethern. That's about to change and the best of the big boys will come on fast in the upcoming months." (Personal Finance)

Behind the scenes

Several readers have asked me, "When do you find time -- between radio, TV and your brokerage business -- to write your Daily Record column?' Mostly between 3 a.m. and 5 a.m., when I feel most creative. I'm gathering material all the time, slipping it into a folder marked TDR, but I do 90 percent of the writing before daybreak.

And now where?

"In March, investors with portfolios of at least $100,000 had scaled down their expectations for long-term stock returns to 9.5 percent annually, from 13.9 percent only a few months earlier." (Opinion Research Corporation)

Money saver

"Save big on estate tax with Section 529 college savings plans," we hear from Kenneth Brier, CPA and tax attorney. "Ordinarily, a couple can give only $22,000 to an individual in one year without triggering a gift tax; but that couple can contribute $110,000 to a child's or grandchild's 529 plan without owing a gift tax."

Notes & quotes

In January 2000 -- with the Dow Jones average hovering around 11,700 -- 47 percent of those surveyed said business was good. In April 2002 -- Dow Jones around 10.000 -- that number had slipped to 19 percent. (Data from New York Times magazine)

"With several IRA alternatives, choosing which IRA to contribute to isn't easy. Consider your income tax rate, available returns for assets outside an IRA and your desired access to your money." (Association of Investors Journal)

"Bear markets are no fun. Once the market does turn, we'll be putting money to work, but for now it's clear an angry bear rules this stock market." (Cabot Market Letter)

Julius Westheimer is special managing director of the Westheimer Group, Ferris, Baker Watts. His column, Julius Westheimer's MoneyWi$e, is published Wednesday and Saturday in The Daily Record. He can be seen daily on WBAL-TV. To ask Westheimer a question, log on to the Ask Westy! page.