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Ten Investment Basics:

With the Bulls and the Bears fighting for possession of the markets, it is always best to remember the basics for long-term investment success.

1. Performance is perishable.

We’ve seen that during the recent market rollercoaster ride. Funds that rank at the top of the heap over one period rarely finish on top in the future. When a fund's prospectus says, "Past performance is no assurance of future results," it's not kidding.

2. You only need a few funds.

You're not collecting Beanie Babies; you're investing. The point is not to buy every imaginable variation, but the fewest number that will provide a diversified portfolio. A money-market fund, a couple of U.S. stock funds and a foreign stock fund are basically all you need.

3. Be a cheapskate.

Far and away the most predictable element about a fund's future is how much it will charge you to own it. Funds that charge less will earn more for you over time. And that means you should stay away from funds with high operating expenses. Look at a fund's Expense Ratio for this information.

4. Funds can be taxing.

From 1972 to 1999, the typical stock fund investor surrendered 52% of his or her account value to Federal income tax. By avoiding high-tax funds, you can keep a lot more than half of what you earn. A fund's Tax Efficiency is a good indicator of this.

5. Risk is real.

Funds that go up a lot more than average have a nasty habit of going on to lose more than average. From 1991 through 1993, American Heritage Fund went up 48.9% annually; then, from 1994 through 1996, it lost 24.8% annually. It gained 75% in 1997; fell 61.2% in 1998 and dropped 31.6% in 1999. In January 2001, American Heritage charted a whopping 30.77% return, but remains unattractive as an extremely volatile investment vehicle.

6. Managers move.

Don't buy a fund just because you like the manager. If the manager up and leaves, you may be stuck having your money managed by a second-rate stranger.

7. Don't just do something; sit there.

Every time you sell one fund and replace it with another, you have to pay taxes; you've made a gamble that the new fund is better than the old; and you've switched from one investing style to another. The best way to build your wealth with funds is to sit still for years at a time.

8. Investing is a partnership between you and the fund manager.
He can't make money for you if you don't stick around long enough to give him a fair chance. So try to control your own bad behavior by investing regularly, checking your account value rarely and understanding what your fund owns.

9. Be realistic.

First, realize that you are unlikely to find a fund that will consistently beat the market averages. Second, there's just no way the market can grow at 25% annual rates forever. Set your sights lower, and hang on for the long run.

10. Index funds are a great idea.
Index funds -- which buy all the stocks in a market benchmark, or index average -- keep your tax bills low, trade slowly, charge very low expenses and eliminate the risk of new managers. What more could you ask?