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Chapter 12. Looking for Mr. Goodfund > Investment Options at a Glance - Pg. 120

Looking for Mr. Goodfund 120 A value manager looks for things like low market price-to-earnings ratios (P/E) and many other financial indicators that you do not have to know or worry about. A growth manager, on the other hand, picks companies that are flying high because everybody wants their products or services. To be a good value or growth manager, you have to be a good stock picker and do a lot of technical analysis to sort out the winners from the losers. To show you how confusing it can be, let's take the case of IBM. In the 1970s and early 1980s (and as recently as July 2001), when IBM was selling for more than $100 a share, the company was considered a growth stock. Earlier in 2001, when IBM was selling below $100 a share, it was deemed a good value. Now why should you care about the difference between growth and value stocks? The investment community has had an ongoing debate over which approach is better. The analysis comparing these two investment types is much too technical for this book. The long and short of it is that both value and growth stock funds have performed very well over the past 20 years. Therefore, our advice to you is to include both types of funds in the stock portion of your portfolio. Investment Options at a Glance If you have followed our directions, you now have a chart that shows all the funds in your 401(k) plan according to market risk. In Chapter 14, "Betting on the Right Horse," we'll show you how to determine what type of investor you are. From there, we'll show you how to divvy up your money into a mix of funds that has the best chance of getting you to your target rate of return. But first, let's answer one of the most common questions investors ask about mutual funds: "What do I look for in a mutual fund? How can I tell if it's any good?" In the following pages, we've organized some funds into a format that we call our investment options