Some of the material on your Web site is over my head, though much of it I find very informative. I want to invest $10,000 in the next week during the current market low. I’m inclined to put my money into a single no-load aggressive growth fund that is poised to take advantage of current technology sector lows and make hefty profits over the next few years.

In your columns you have favorably mentioned Vanguard STAR and PBHG Large Cap Growth funds. I am willing to assume the risk of the PBHG fund to get a strong start. I plan to diversify and moderate the risk within three years. Will the PBHG fund take the best advantage of the current dip in technology stock prices? Is there another fund you can recommend that is better? Or do you think I should consider another strategy?

Paul's Answer:

Almost every investor would love to know what fund is "poised to take advantage of" the current market and will "make hefty profits over the next few years." And nearly every investor would love to know what fund will take best advantage of the current situation. If you knew the answers to those questions, in a few years all your financial worries would be over.

But how can you possibly know that this is at the "low" of the technology market cycle? Do you know something that the professionals who study the market every day don't know? Or are you just guessing and going on hunches? And if it's the latter, does $10,000 really come so easily to you that you are willing to risk losing it so casually?

From my point of view, your proposed strategy is backwards. You want to make huge profits now being aggressive and use those big profits later to diversify. You of course are free to do that, and maybe you'll impress your friends with your gutsy approach. But if that's your goal, you should look somewhere else for advice.

Yes, I do recommend another strategy. I recommend you adopt a core investment strategy that's diversified and that will not put you at risk of losing a large part of your money.

Start by learning how to do a little bit of homework on mutual funds. You mentioned the Vanguard STAR fund and wonder if that is the ticket to quick riches. Obviously you don't know anything about this fund. And you either don't know how to find out about it or you're not willing to do it yourself. If you simply take somebody else's recommendation, even mine, without knowing what you are doing, you are almost certainly going to regret it sooner or later.

So here's a quick course in how to do a little bit of research yourself. Go to www.Morningstar.com and use the box at the top of the page on the left to look up Vanguard STAR fund. You'll be taken to a page called a Snapshot. That page will tell you everything you need to know to determine if this fund would be suitable for what you have in mind.

You'll see that this fund is a "domestic hybrid" that normally keeps about 25 percent of its assets in bonds. Does that sound like a red-hot fund that's "poised to take advantage" of a technology stock boom? Sure doesn't sound like it to me!

You can do the same research with any fund, and I'll use this one to show you some of what you can find. Scroll down the page and look on the right under Fund Details. You'll see that Vanguard STAR has no sales charges, so it's a no-load fund. Its expense ratio is zip, an unusual case. But that's because it is a fund of funds. Scroll down a little more and you'll see on the right-hand side of the page that bonds make up 35 percent of the portfolio, stocks 59 percent. If this fund is "poised" for anything right now, it's poised to protect an unusually high (at least for this fund) percentage of its shareholders' money from the volatility of the market. Maybe you will disagree with the managers of this fund, but at least you now know that they think the market is unusually risky these days, not necessarily about to head toward the moon.

Near the top of this page you'll see this fund's year-to-date performance, up 8.2 percent when we looked on the last day of October. That's better than a lot of all-stock funds.

This fund looks like a low-risk vehicle for conservative investors. So a good question is: How well did it protect investors during a particularly tough market period? To find out, click the "view additional performance information" link on the left side of that page. Scroll down until you see a table of historical quarterly returns. Look at the third quarter of 1998, and you'll see this fund was down 8.3 percent. That's not great, but it's vastly better than the 20-plus percentage losses that many aggressive stock funds dished out to their shareholders in that quarter.

It's obvious that this particular fund is not what you are looking for, though it has much to offer and you could do a lot worse than to invest a third of your portfolio in it. But I want to show you one other thing on Morningstar's site, using this fund as an example. Let's say that you decided this is the type of fund for you, but you wanted to look at others that have similar characteristics so you can shop for just the right fund. Here's how to do that: Hit the "back" button on your browser to get back to the snapshot view for this fund.

On the right side of the page, click on "compare investment-style returns." Bingo, you get to a page with several lists of similar funds, ranked by top performance over several time periods. Scroll down the page and study the three-year and five-year lists (the others are too short to mean much), and browse for funds that might be interesting.

If you do the same analysis on the other fund you mentioned, PBHG Large Cap Growth, you'll find out that it's essentially a technology fund with above-average risks and good performance in 1999 and 2000. If technology takes off like a shot, this fund is poised to take advantage of that. But the same is true of hundreds of large-cap funds, some of which you'll find listed under "compare investment style returns" on the PBHG Large Cap Growth snapshot page.

The following is not a recommendation, so don't ever say I recommended it. But it's an example of something you could do. Personally, if I had $10,000 that I could afford to place at high risk and that I hoped would take advantage of an expected boom in technology stocks, I'd divide my money equally three ways: starting with the relatively conservative T. Rowe Price Science and Technology Fund, then adding two super-aggressive funds that have been quite successful so far: Van Wagoner Technology and Strong Growth 20.

Then I'd do one more thing, which I think you would find extremely difficult if not impossible. I'd set up these accounts so that I could not look at the performance of those funds, or my balances in them, more than four times a year. In other words, I'd make my decisions and take a three-year perspective, then leave the whole thing alone to do its thing and make me or break me. And I wouldn't quit my day job while waiting for this technology boom to make my fortune, either!