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Fund Upgrading
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Upgrading Overview

In Upgrading, each month we rank more than 1,500 mutual funds by type and determine which ones have been delivering the best recent performance. We recommend the purchase of the top funds in each of five SMI risk categories. These funds will be held until they stop outperforming. At that point, we recommend replacement funds that are showing stronger recent performance.

Upgrading works because market leadership rotates among different investment approaches and companies of different sizes as economic conditions change. But although market conditions are constantly changing, fund managers rarely change their strategies in response. As a result, managers who excel under one set of market conditions are often only average (or worse) under a different set of conditions. So, rather than buy a fund and hold it through both the periods that favor the manager's approach and the periods that don't, Upgrading continually guides us to funds that are in favor right now.

This means we move in and out of funds more frequently than some people are used to, but it has helped us establish a track record of beating the market over an extended period of time, under both bullish and bearish market conditions.

Fund Upgrading has achieved a consistent advantage over the market (as measured by the Wilshire 5000, the broadest measure of U.S. stocks)

The chart below shows the cumulative effect of this advantage, comparing the 14-year growth of a $25,000 Upgrading portfolio (green shaded area) vs. the market return (gray shaded area).

The $25,000 invested in Upgrading at the beginning of 1999 grew to $76,936 while the market portfolio (as measured by the Wilshire 5000) increased to only $41,310. In other words, the Upgrading portfolio was worth almost twice as much after 14 years than a portfolio that earned the market's return.

1. Sound Mind Investing's new subscriber materials will help you determine the appropriate amount to invest in each stock or bond group, which we call risk categories. These materials will guide you to the most appropriate column for you in our asset allocation chart (below).

SMI will direct you to the allocation column that best fits your situation.

2. The asset allocation chart shows you exactly what percentage of your portfolio we suggest be invested in each category of mutual fund.

3. SMI's monthly Recommended Funds page shows which funds are currently recommended. Choose one (or more) funds from among the four recommendations in each category.

Asset Allocation Example

4. Each month, you simply review the new Recommended Funds page to see if any of the funds you own have been replaced. If any have, the new funds are clearly noted, and you just sell the old fund and buy the new recommendation.

Upgrading isn't complicated. It requires your attention only once per month, and its track record is exceptional. What are you waiting for? Order your subscription to Sound Mind Investing today!

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