<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (Jan. 21, 1998) -- A number of readers wrote to me since yesterday's Foolish Four column, excited about the prospect of putting away as little as $40 a month and turning it into nearly $25 million over 60 years. But what I didn't discuss in yesterday's column is how one might go about starting with such a small amount. Today, then, let's look at some preliminary steps toward fleshing out a fully Foolish portfolio.

If you're genuinely starting from ground zero, there are a couple of options that will help you start your savings plan. The first is to do a little research on S&P 500 Index mutual funds. These are passively managed funds that mimic the major market index -- the S&P 500 Index. Of the thousands of mutual funds out there, index funds are probably your best bet because you'll at least stay even with the market index while you're saving each month. More than 80% of all stock funds don't manage that over the long haul.

Many of these funds have minimum required investments, a few of them even fairly high. But some of these funds will reduce the minimum investment if you set up an automatic direct deposit each month. Do some research in Morningstar and find an S&P 500 Index fund that matches your needs and then send in that check every month until your account has a couple thousand dollars in it. Then you're ready to start buying stocks directly and can justify the costs of a deep-discount broker and the Foolish Four. Even at that point, however, you might want to keep the index fund open for your monthly deposits, pulling out the money once a year as you update your Foolish Four stocks.

Another possibility if you're adding money regularly and want to jump right into the world of stocks is to start a Dividend Reinvestment Portfolio like the one now being managed in our Hall of Portfolios. Each month you'll send your check to the company whose stock you want to buy and the company buys it for you directly instead of going through a broker. This approach is a little more time consuming than using a simple index fund, but frankly, it can be a lot more fun and the rewards can be a lot higher if you select top-quality stocks. When your portfolio gets large enough, you may wish to begin managing it as a regular portfolio through a broker, but you don't have to. The options are many and in your favor.

As your portfolio tops $4,000, start thinking about expanding your horizons beyond the Foolish Four. Your eventual target might be some 15 stocks with roughly equal investments in each one. I often tell readers to consider adding a new position with each new $1,000, so that by the time your portfolio is $15,000, you hold 15 different stocks, each worth approximately $1,000 at the time you update. Additional money after that just increases the average value of the 15 stock positions you've already established.

Starting slowly may seem frustrating at first, but it's amazing how quickly those monthly or quarterly statements start showing your portfolio's growth -- some from saving, some from good investing. That's the way Foolish wealth is built.

[Want to be the first Fool on your block to get a copy of Robert Sheard's forthcoming book? Click here to pre-order your copy of The Unemotional Investor.]

TODAY'S NUMBERS

Stock Change Last -------------------- UK - 5/16 40.88 IP - 1/2 45.44 MO + 5/8 44.25 EK - 1/8 60.31

Day Month Year FOOL-4 -0.18% -0.52% -0.52% DJIA -1.00% -1.44% -1.44% S&P 500 -0.80% 0.04% 0.04% NASDAQ -0.14% 1.12% 1.12% Rec'd # Security In At Now Change 12/31/97 289 Int'l Pape 43.13 45.44 5.36% 12/31/97 206 Eastman Ko 60.56 60.31 -0.41% 12/31/97 276 Philip Mor 45.25 44.25 -2.21% 12/31/97 291 Union Carb 42.94 40.88 -4.80% Rec'd # Security In At Value Change 12/31/97 289 Int'l Pape 12463.13 13131.44 $668.31 12/31/97 206 Eastman Ko 12475.88 12424.38 -$51.50 12/31/97 276 Philip Mor 12489.00 12213.00 -$276.00 12/31/97 291 Union Carb 12494.81 11894.63 -$600.19 CASH $77.19 TOTAL $49740.63