Conquering Stock Market Hype

Rating:
Summary: Making Better Stock Mutual Fund Share Purchases
Review: This book presents a value averaging purchase plan for stock mutual fund shares based on the S&P500 P/E ratio. After presenting background information on P/E ratios, the historical real returns of the S&P500 are presented versus its P/E ratio. The near linear relationship shows that when P/Es are high, ie prices are high, real returns are low. One feature of dollar cost averaging is to buy more shares when prices are low; however, investors can improve upon this by considering the P/E ratio to increase their periodic purchases when P/Es are low and decrease them when it is high. A thorough description of other asset classes and their roles in a portfolio is also provided, including inflation protected instruments.