<FOOLISH FOUR PORTFOLIO>

On the Way to Reality
and evidence for a December Start

by Ann Coleman
([email protected])

Reston, VA (December 7, 1998) -- Quick review: Last week we announced that the Foolish Four would be launching a real money portfolio this month. The stocks for the portfolio will be announced on December 23, and the trades will take place (in accordance with the Fool's rules for portfolio stock buys) within the next 5 days. The portfolio will start out at $4,000, and we will also announce a $2000 to $3000 variation.

Today I want to talk a bit more about setting up an account for those of you who are just starting your Foolish Four adventure and offer you some serious encouragement to get moving on it NOW! (Would the prospect of a hundred thousand dollars in free money get you moving?)

If you are planning to transfer funds from an IRA at a mutual fund company, better get on the stick. Seriously, those transfers can take three to six weeks, although it's hard to see why.

Another consideration pointed out by a reader -- on Wednesday I suggested that one criterion for choosing a broker would be how helpful its customer service department was. I said to develop your shortlist (which the Discount Brokerage Center can help you with) then call them all and pick the one that's nicest to you.

Well, someone wrote from Japan to point out that if you expect to do your customer service via e-mail (free, vs. big bucks for phone calls from outside the country), you should test their service via e-mail. Good point. Often e-mail is a more convenient way to communicate, given that the company actually has humans reading it. This reader's complaint was that the phone service was good, but his e-mails seemed to generate nothing but auto-replies or canned responses. I've experienced the same thing, and I'll bet you have, too. I will sometimes sit on the phone for 20 minutes rather than sending an e-mail.

Let's start a campaign -- come on, brokers and everyone who does business electronically! Stop with the canned response thing! It's really annoying to take the time to detail a problem only to get back a response that sounds like no one even read your message. "Thanks for writing and rest assured we are looking into the problem you reported" doesn't make me rest assured. There are (or better be) people at both ends of these e-mails. How about a little human interaction! Would it kill your employees to write, "Thanks for writing and rest assured we are looking into the problem with the XYZ transaction?"

Shoving the soapbox back under my desk, let's proceed to the business at hand. Hopefully, if you needed to, you have set the wheels in motion to open an account and are gathering your pennies or filling out transfer forms. You've checked out whether or not you qualify for a Roth IRA and are opening one if you possibly can.

I can report that my forms are in the mail! The account will be an IRA so we won't have to worry about taxes, but for the convenience of those of you who might be following along with non-IRA money, I will be holding the stocks for at least a year and a day so that you won't run into short-term capital gains.

Speaking of capital gains, I want to clear up something from Friday's column. I mentioned a 10% capital gains tax, which threw some of you for a loop. The reason our beach bum was only paying 10% on long term capital gains was because he was in the 15% tax bracket. Anyone in the 28% or higher bracket would pay capital gains at the 20% rate. I was trying to make the illustration simple, but I guess a lot of folks have just forgotten the existence of the 10% rate category since it doesn't apply to them -- a mixed blessing, as one of my correspondents put it.

We also had a snafu on the byline for Friday. Poor Chris Rugaber's byline got left on the column from Thursday and he had to deal with all that e-mail. Gee, I feel terrible. I had a nice weekend, though -- great weather here in Virginia. Sunny. High of 72.

If you haven't got your stuff in the mail -- get crackin'. I recently came across some Dow research that leads me to believe that the optimal time to invest is definitely in December -- Before January 2.

If you recall, our monthly database indicated that, over the long run, portfolios started/renewed on the first trading day in January produced the highest overall returns, followed by portfolios starting/renewing on the first trading day in December. But we were only looking at one day per month. The data I saw recently was for a Dow portfolio traded on December 31. It looks like that one day difference made a half a percentage point per year difference in the compound average growth rate over the last 30 years. A half a point difference in the average annual return can mean hundreds of thousands of dollars 30 years down the road. Most mutual fund managers would sell their mothers for a half a percentage point difference in their long-term compound annual returns. That's free money, folks. It costs you nothing.

How much difference it will make this year is anybody's guess -- but I figure it's worth hustling a bit when we are talking about that kind of money.

Fool on and prosper!

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Current Dow Order | 1998 Dow Returns

12/07/98 Close

Stock Change Last -------------------- UK + 13/16 44.00 IP + 3/16 43.69 MO - 7/16 55.13 EK + 7/16 74.00

Day Month Year FOOL-4 +0.46% -0.16% 13.96% DJIA +0.60% -0.51% 14.70% S&P 500 +0.95% 2.07% 22.39% NASDAQ +1.87% 4.67% 29.95% Rec'd # Security In At Now Change 12/31/97 206 Eastman Ko 60.56 74.00 22.19% 12/31/97 276 Philip Mor 45.25 55.13 21.82% 12/31/97 291 Union Carb 42.94 44.00 2.47% 12/31/97 289 Int'l Pape 43.13 43.69 1.30% Rec'd # Security In At Value Change 12/31/97 206 Eastman Ko 12475.88 15244.00 $2768.13 12/31/97 276 Philip Mor 12489.00 15214.50 $2725.50 12/31/97 291 Union Carb 12494.81 12804.00 $309.19 12/31/97 289 Int'l Pape 12463.13 12625.69 $162.56 Dividends Paid YTD $1092.81 TOTAL $56981.00 </FOOLISH FOUR PORTFOLIO>