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Show _The Salt Lake Tribune BUSINESS 2 Key Factors To Evaluate Index Funds YOUR FUNDS Buffett’s Simple Lesson: Search they getin atthe verystart, even SOCIATEDPI NEW YORK Theportfolio includes soft drinks, finance, razors, insurers, newspapers and electric utilities. What kind of a Jnthelate 1980s, I let my cat pick a stockportfolio. Shestretched out almostdaily onthestocktables, so I charted for a monththepointsofherfeet and nose. Theresult was The Millie Index, a column experiment that gained 44 percent and crushed the stock market over the next 12 months, WereMillie alive today, she would probably have her own mutual fund by now. What's worse, people would buy such a nonsensefundexpressly because it istied to an index. Because any dumb idea can be spawnedinto an index fund, in- vestors must rememberthat not all indexesare created equal. Thatlesson cameinto focus last week, wheneditors at the portfolio is that, without a single technology stock? An enormously successful one, judging from the returns. The portfolio of oneof thegreatest investors ever. The portfolio of Warren Buffett, the nation’s third-richest person. But doesn't he know, as “with- it” traders do, that newfangled startups create instant millionaires, their shares erupting from the starting gate, rising sky high, splitting and showering down wealth? Well, of course he does, but he mightpointoutto youthat noneof the startups pay dividends and that dividends, even if only at, say, 3 percent a year, add up over a de- cadeorso. A decade! Good heavens, you Say, anyonewith a brain can earn 3 percent in a week on some small high-tech or Internet stock. Andif Wall Street Journal plans to change the Dow JonesIndustrial Average, replacing four stocksin a movethatwill alter the future performanceofthe benchmarkindex. 100 percent in an hour. Can't deny it: Some high-tech startups have madetheir founders multimillionaires, even billionaires.Isn't it better to earn a load of moneyina few days or weeks or monthsthan over a decade? flare out. Easy come, quicklygo. On the other hand, those old. line companies keep trudging along. People need electricity, insurance, financing, furniture and news. They drink gailons of soft drinks and use billions of razor blades. haveoutperformedactive stock pickers. Those numbers, coupled with the cost and tax advantages of indexing, haveattracted scores of investors. That is why somefirmssell unit investmenttrusts (UITs)fixed portfolios of securities that act like index funds. And it explains the popularity of exchange-traded unitinvestment trusts, essentially index shares traded on a stock ex- change. The most popular of these are “spiders” or Standard & Poor's Depositary Receipts, which mimic the various S&Pin. dexes, but there are also “webs” or world-equity benchmark sharesthat functionlike singlecountry indexfunds (picture buy. ing every stock in, say, Malaysia and holdingit forever). this week that Buffett's Berkshire Hathaway Inc. invested in Mi dAmerican Energy Holdings, gas and electric concern, the u ty’s laggard shares soared $6.125, judgments Buffet has made over shares are out of favor, rather than succumbing to the temptation to jump aboardfor abriefride a.m., Little America Hotel, 500 S. WEDNESDAY Workshop. Salt Lake Attention Macola Users Electronic CommerceInt'l is pleased to announce the openingof its new Salt Lake City office. ECI is a full service provider of EC, Accounting, ERP and Manufacturing software solutions. To introduce ourselves we wouldlike to invite you to our first monthly Macola partners meeting to be held 7:00 pm on November 3rd at the Hilton, Salt Lake City, 150 West 500 South. Come share your thoughts and experiences with us and other Macola users. Refreshments will be provided. Call 801-363-8336 to confirm your participation. Le INTERNET Thisweek 8.00 Lastweek 7.96 Lastyear 679 7.62 757 640 655 652 555 Date This week MMDA* 2.07 Last week 2.07 14.70 1466 15.11 6-months 1-year 2-1/2-year 16.12 16.22 13.83 5-year 4.83 5.09 5.34 4.44 4.82 5.08 9.32 Last year 2.45 4.30 * Money Market Deposit Accounts 4.39 4.44 4.58 -¥ields.on biggest money:funds Hereare the 15 biggest money-market mutual funds opento individuals with their current seven-day annualized yields. This week 4.98% 4.89% §.22% 5.17% Last week 4.96% 4.86% 5.15% 5.13% 5.22% 5.02% 5.00% 5.12% 4.85% 5.12% 4.99% 4.63% 4.74% 5.17% 4.77% 2.79% 5.16% 4.97% 4.98% 5.09% 4.83% 5.08% 4.96% 4.58% 473% 5.14% 4.77% 2.77% 4.86% Fidelity Spartan Money Market Fund Avg. taxable money fund Tax-free funds 6mos. ago 4.39% AS 4.81% Source: Money Fund Report THURSDAY Credit card* 4.48 Merrill Lynch Retirement Res. MF ommand Money Fund free for mem- 886 884 889 Personal Bank deposit yields _, : Bank Rate Monitor's weekly survey of the 10 largestbanks and S&Ls in the 10 largest metro areas Alliance Capital Reserves Stagecoach Money Market Fund for nonmembers, Car “Average has changedfrom a fixed rate cardtoa variable rate card Suite 600, Salt Lake C ity. Cost is $10 they began searching for other undervalued stocks, and notjust amongutilities but in other areas Others 1-year 30-year 15-year ARM that changehadspedon by. decades. Not only did investors want to Commuaity College ho: Seminar. The Salt Lake Area Chamber of Commerce hosts a seminar “Access Your Financing Opportunity,” 8:30 to 10:00 a.m., chamberoffices, 175 E. 400 South, Date Fund(ranked bysize) Merrill Lynch GMA Money Fund Smith Bamey Cash Port/Class A Vanguard MMRY/PrimePort Fidelity Cash Reserves ‘Schwab Money Market Fund SchwabValue Advantage MF Centennial Money MarketTrust MorgStan DeanWit/Liquid Asset DeanWitter/Active Assets MT PaineWebber RMA MF/MM Port spect for the smart, independent bers. Information: 364-3631. makesfor a representative sam- tax-efficient means to capture market returns and generally verlookedanddoes soat bargain ric Immediately after word spread jump aboardhis latest buy, but Gold,” a customer-ser shop, 8 a.m. to noon, SLCC South an index mania,and for good reason. Index fundsare a cost- and buys the goodold companies they companies,not just shares. His philosophy differs in other ways as well. He buys when City Campus, 1575 S. State St., Salt Lake City. Cost is $49. Information: 957-3428. The past few years have seen not listening to all the but act short-term, he holds. He invests rather than trades. Andin MainSt., Salt Lake City. Information: 293-8966. ing market-like returns without high managementfees. ft means doing your own or by 22.5 percent, to $33.375. It was further evidence ofre- Conference. Southwest Capi: tal Resources hosts a conference An index fund simply mirrors theindex basket of stocks, provid- lefying trendsto find bar- Buffett buys for the long term, in years and even decades. Unlike institutions that preach iong-term on angel financing, 8:45 to 11:45 ple of “the market”or a sector of the market. means its prove otherwise. While “experts” promote what's new, he skyrocketing, most new issues That changeservesasa re- name —isa groupofstocks that patience and much study. It collapses occur in silence. After nounced with drumrolls, but the hind every index. An investment aren't relying on cat). A well-designed index — any of the major ones you know by quality companies takes a lot of Perhaps not. You hear about the startups; their shares are an- WEEKLY PLANNER TUESDAY Mortgages on a momentum-(rivenstock. To find underpriced, high- in a time of change, Buffett's search for constancy is in consistent with reality, but his minderthatreal peopleare beinan indexfundisa bet that thosestrategists have a clue (and ro TASTUUaL C= Lees)eg a largest banks and S&Ls in the 10 largest metro areas. Mortgages are conventional loansat 80 percent loan-to-value. Car loans are for $9,000,20 percent down, 48-month new cer. Personalloansare for $3,000 24-month unsecured loan Bank Rate Monitor's surveyof the 10 Startups maysound tempting, but mostflare out after skyrocketing TH CHARLESA. JAFFE Money Scoreboard For Bargains, Buy for Long Term BY JOHN CUNIFF E3 Sunday, October31, 1999 | 4.25% 4.59% 4.28% 2.78% Gannett News Service Seminar. US West Dex and the Salt Lake Area Chamber of Commerce sponsor a seminar, “ae! A MANFORALL SEASONS Outdoors Reporter Skip Knowles Your Business on the Net a.m. to noon, The E Center, 3200 . Decker Lake Drive, West Valley City. Information: (800) 707-7654. One great bank. Two great ways to save. One Year ene DoT Personal Money Market Account Manz re Penne FEES POO UL Ee acy PTAA ALL Ag ATREU 1455 E. 2100 S. Salt 1 City 487-0811 Home CREDIT BANK SAFE. SMART. SIMPLE. ‘There also are more “enhanced index funds,” including ScudderSelect 500 and Ameri. can Century Growth & Income. ‘These fundsessentially try to “improve” an index. Think in ‘termsof the Dow's changes; the Meccan) ‘index would be at much higher Jevels today had the moves been ghade a decade ago. Enhanced in“dex fundstry to keep an index's winners andkickoutthe lag- gards. _ That is not indexing. Higher ‘costs and lower-than-index per- formance tendencies show that it's not enhanced,either. Says Morningstar director of research John Rekenthaler: “In 19* 25 1600x1200 $325 17" 27 1200x1024 $192 15".28 10245768 $115 dexing doesn’t work just because it's indexing, it needs to combine a good investmentidea with low costs, Someof the new indexes do notdo that.” Thatis why any new indexoffering needs to be evaluated for two key factors 1) Cost. Index funds work becausethey are cheap. You get what youdo not pay for, the sav: ings fromnot havingactive man: agement. Anindex fundwith the bigger expense ratio of an actively-managed fund has lost the key ingredient for success. 2) Structure, Many new index funds cover sectors, ranging from real estate to health care. Makesureany newindex is With over 100 yearsof Commercial/Fleet experience we can get you the truck you want spec’d the way you needit. sufficiently diversified and con: structed in a way that captures th nce of the sector. In some sector or single-country indexes, oneor two stocks makeup25per: centof the holdings. Those indus tries or nations may not be ma ture enough to support a true, honest index, Charles A. Jaffe is a mutual funds columnist at The Boston Globe, He can be reached by e-mail at jaffe@globe.com or at The Bos ton Globe, Box 2378, Boston, MA 02107-2378. § » 1300 South 385 West HOURS:Mon - Fri 7:30AM - 5:30PM + Saturday 9:00AM - 3:00PM BUSINESS HOURS _488-1740 | TOLL FREE (800) 950-3673 488-1700 _ AFTER HOURS ° | we |