2

Lets say I think a specific Index fund/Mutual fund is a good potential investment e.g. VHCOX, given its high growth rate in the past one year.

Does it matter at what time I make the initial investment? Should I wait for entry till its trading a little lower in the near-term? Or does that have no impact if the intent is to hold it long-term and its best to jump in once the decision to invest is made?

3

Aside from "Buying a dividend", I don't know of anything specific in regards to funds as they are often purchased in fractional shares and if a mutual fund company decides it can split its shares to artificially lower the NAV in a manner similar to receiving 10 dimes for each dollar bill one has so that there isn't a change in the total value. From the link:

"Buying a dividend" refers to purchasing a mutual fund just prior to a distribution by that fund. It is not advisable for an investor to purchase a mutual fund that will be held in a taxable account immediately prior to a distribution. A portion of the investment will be returned to the investor as a taxable distribution. The investor will incur a tax liability on a distribution without any benefit.

I would consider a couple of other points when looking at a fund:

  1. Management - Is the current management what has that track record? Sometimes this can be useful to note as if the management isn't responsible for the record, how useful is this knowledge? (For example, in the case of VHCOX there is also VPMCX that has the same management company which is worth noting as well.)

  2. Size of fund - In particular has the fund grown a great deal that may make the fund more challenging to actively manage? Some funds that focus on a particular style of market may have challenges if the size of the fund grows a great deal. Additionally, is the style of the fund pure or not is something else to consider as some people may desire for funds to invest in companies of a certain size rather than giving the manager free reign.

2

This is a PE10 chart. Robert Shiller (Yes, recent Nobel prize winner. That guy) is one of the advocates of using PE10 as a guide to understand the market's relative valuation. Mean and Median PE10 run 14.5-15.5 vs current 19.71. This is not advice, but just an attempt to put things in perspective.

PE10

  • Informative. What is a young investor to do though in a bull market with such low interest rates? :) – vivekian2 Nov 15 '13 at 18:13
  • 3
    Use extreme caution. Dollar cost average in. Search on that term here if you don't know what this is. – JoeTaxpayer Nov 15 '13 at 19:08
1

Near end of December, most funds will be doling out their capital gain dividends, ontop of their normal quarterly dividends, because the year was so profitable... So assuming you don't want to wait for the market to crash back down to a cheap enough share price, these dividends should help slice a good 2%-5% portion off of the fund price. So I'd suggest you wait for this event, assuming you don't want to sit around waiting for the market to bring the fund price down.

Holding long-term the price you buy at won't matter too much, but it is always better getting more bang for your buck. Cheaper you buy = more shares = more dividends per year.

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