October 18, 2003
Stock Investing
I've been reading Motley Fool on and off for a few years now. They say that almost all mutual funds underperform the S&P 500 in the long term. I just did an analysis on my retirement finances and found it that if I had taken all of my retirement contributions that I've ever done and immediately invested them in an S&P 500 Index Fund, then so far I would have lost 8%. If this sounds bad, you should know that the majority of my retirement contributions were in '99 and '00. Anyway, that performance is a lot better than my actual performance has been, given the other "bubble" investments I was making, and the mutual funds I invested in that ended up just lousy.But right now, I'm looking seriously at a variant that seems like it could be a lot better than just blindly going for the S&P 500. Basically what you do is you put all your money in the S&P 500 when the price is above its 200-day moving average, and you take it all out and convert to cash when the price falls below its 200-day moving average.
Here's a chart that shows how it would have worked since 1996. That's pretty amazing. Almost all of the boom, almost none of the bust, and a good portion of this last year's recovery. I wonder how it works long term, like over the past thirty years?