have at least $100,000 available for investing.

A recent television commercial has introduced the concept of having a "balanced portfolio''. This commercial produced by a local financial institution, is to promote the secure side of this balanced portfolio. The other side of the portfolio is comprised of growth stocks, which offer the opportunity for above average gains but are more risky. I agree completely with this concept of investing. Growth stocks should be purchased for above average gains and they should be held as a diversified portfolio.

A diversified portfolio of stocks is achieved by holding a variety of stocks representing a variety of industries. The concept is that this will reduce your risk of holding just one or a few stocks issued by companies that are experiencing business or industry hardship. therefore, given that 100 shares of the average overseas blue chip stock would costs $5,000, 12 (offering adequate diversity) of these stocks would, on average costs $60,000.

Assuming you accept the case for not buying stocks unless $60,000 is available, then what would the smaller investor do to take advantage of the growth opportunities that stocks offer? The answer is open end mutual funds.

What is an open-end mutual fund? It is a professionally managed diversified portfolio of investments in which all investors' monies are pooled. Purchases and redemptions made by investors are based upon the net asset value of the investments at the time. Purchases and redemptions can be made at any time.

There are many specialty of mutual funds. The ones discussed in this article are stock portfolios. These are presented because they offer the small investor the greatest return. There are thousands of mutual funds available around the world. In Bermuda, we enjoy the special advantage of being able to purchase almost any mutual fund in existence.

These are some characteristics of mutual funds which the potential investor should consider before making a purchase: 1: Long-Term Hold Money market and in certain instances, bond funds may be held for the short term.

However, equity mutual funds are the answer to the small investor only if you are willing to hold the fund for the long term. For instance, if stocks are bought and held for less than five or ten years, then the investor risks holding his stocks for less than one economic cycle. This is assuming an economic cycle is four to seven years (an historical observation). Stocks held directly, or in a mutual fund, for less than one economic cycle are at risk of being sold at a loss. (Let's consider an analogy: if you bought real estate less than five years ago, and attempted to sell it today, you may realise a loss because we are presently at a low in the economic cycle of Bermudian real estate). Therefore, like real estate, you should hold stocks, and stock-based mutual funds, for growth over the long term.

2: Performance History This is the mutual funds record of returns. One should examine returns on an annualised yield basis. This is to make it more comparative across funds. Many funds will report their yield since inception. This can be misleading, especially when the date of inception is difficult to find. As well, a return record since inception does not give the investor the ability to compare funds of different inceptions dates. Therefore, to make an informed decision as to a good performing fund, the first step is to determine the history of performance (or return or yield) on an annualised basis.

3: Interpreting Performance Mutual funds, should then be reviewed by their area of specialty, (e.g.) An Asian Equity fund is compared only with other Asian equity funds. This is the only fair way to compare mutual funds. The investor usually has a preference for equity or bond funds and oftentimes has a preference for a specific region (such as the Pacific, Europe or North American) or a specific industry (e.g.) Telecommunications).

Once the investor has chosen a type of fund (geographic area or industry) he/she should compare all the mutual funds available within that type. This is done by reviewing the annual returns. It is better to take a longer-term view to see how well the fund manager performs over many years. The fund with the higher returns over the longer term is likely the fund you will want to consider purchasing.

4: Investor's Objectives You should buy a fund to meet your personal financial objective. For example, if the investment is to finance your child's education, then you may wish to buy a fund denominated in the currency of the country in which your child will reside while attending school.

5: The Fund Family is an Advantage Over time, one's financial objective will change, therefore, I believe one should buy mutual funds from a manager that offers a variety (known as a family) of funds. When your financial objectives change, you can switch from one fund to another within the same family. Often this switch can be done at a nil or very low cost. For example, as your near retirement, you might consider switching from a stock fund to an income fund which offers more security but continues to offer professional management.

6: Fees Let's examine loads. These are the fees the fund managers charge in investor.

The intermediary, an investment counsellor such as myself, will usually enjoy a portion of this load. The funds I prefer charge an "up-front'' load (i.e. a fee at the time of purchase).

In almost all instances, these funds will not charge an additional fee if and when the investor chooses to redeem his fund investment. However, many funds do charge a "back-end'' fee which may be hefty at the time of redemption.

Most mutual funds charge annual management fees. (If the fund manager does not charge an annual fee, then the fund is being subsidised by some other line of business.) These fees vary but almost never exceed 2% per annum. This is how the fund manager covers his costs such as salaries to his employees. Most annual returns publicised are gross, i.e. they have been reduced for the annual fees charged.

7: The Option of Dividend Reinvestment To realise the greatest growth from your mutual fund investment, you should have your annual dividends automatically reinvested. There will be no load fees for these purchases via dividends. A small saving, but a saving nonetheless. Another advantage of automatic reinvestment of dividends is that you will see the true total return of your mutual fund investment over time.

Many who choose to take their dividends and spend them annually, forget to include them in their total return over time and make poor decisions as to the profitability of their mutual fund.

Conclusion I hope you, the reader, have found this article useful. If you choose to buy one of the better mutual funds, and practice some of the rules-of-thumb outlined above, you will enjoy above average returns on your money. Where else have you seen historical averages between 10% and 20% per annum on your savings? Carolyn Hall (C.A.) is the founder of Gulfstream Securities.