(MONEY Magazine) – When you start to eyeball your year-end fund statements, chances are you'll be smiling. With the average domestic equity fund gaining 20.4% to December, 1997 was shaping up as another stellar year. But the numbers on your statement don't tell you how you did, unless you happened to invest all your money on the first day of the year and made no additions or withdrawals after that. If, like some naughty investors, you shoveled money in and out of the fund trying to capture market peaks and troughs, you might well have earned less than the funds' total return. On the other hand, if you invested the nice way, ignoring market conditions and making steady deposits every month (also known as dollar-cost averaging), you almost certainly did far better than the fund's final figure indicates. Says Stephen Savage, editor of the Value Line Mutual Fund Survey ($295 a year; 800-284-7607): "The good news for most investors is that dollar-cost averaging will give you higher returns than you think."

That's certainly been the case for Bill, 34, and Rebecca Purcell, 33, of New York City, pictured below. The couple regularly channel $833 a month into aggressive stock funds, including Invesco Dynamics, which has chalked up a hefty 32.7% average annual return over the past five years for steady savers like them. "We have our investments automatically deducted from our checking account, so we don't have to think about it," says Bill, a freelance graphics designer and a yoga enthusiast. "But once a year I review the performance, and I'm always surprised to see how big our nest egg grows as our money compounds."

To find out just how powerful dollar-cost averaging can be, MONEY asked New York City fund research firm Value Line to calculate returns based on a regular investment of $100 a month for all 664 widely available diversified domestic-stock funds with records covering the five-year period that ended Oct. 31, 1997 and for all 384 funds around for the 10-year period that ended Sept. 30, 1997 (we chose that date to include the October 1987 market crash). Value Line found that, on average, investors using this strategy would have earned a whopping 25.7% effective annual return over five years and 23.7% over 10 years vs. the average annual returns of 17.4 % and 13.3%, respectively. (The dollar-cost average calculation, known as internal rate of return, measures the actual gain on each dollar invested based on how long the money is held; thus it indicates the growth rate of your investments, not just the performance of the fund.) For the 15 funds that delivered the top dollar-cost-average returns over the past five and 10 years, see the table on page 108. Then in the story below, we highlight five that are smart choices for a regular investment program now.

When we launched our study, we expected to find that dollar-cost averaging would benefit some types of funds more than others. But when the results came in, we got a surprise: Steady investing didn't play favorites; rather, the technique boosted profits at funds of all stripes. Probable reason: The rip-roaring bull market of the past decade sent returns soaring across the board, minimizing the differences between daring funds and conservative ones. "Because the market has risen so consistently, even risky funds have tended to go up far more often than they go down," says Savage.

Of course, had you known the market would enjoy this astonishing advance, the best move would have been to plunk all your money into the market 10 years ago and let it ride. But there are two problems with that scenario: 1) you may not have had a big sum to invest 10 years ago, and 2) you did not know what the market would do.

Moreover, dollar-cost averaging is the ideal method for investing in today's market, which is hovering near all-time highs and subject to steep, sudden downdrafts like October's 12.4% sell-off. (And if you contribute to a retirement savings plan, such as a 401(k) or 403(b), investing gradually may be your only option.) Dollar-cost averaging works especially well in volatile markets, because it allows you to pick up more shares at bargain prices during dips. It can also help see you through extended downturns. Consider: If you had been saving $100 a month in stocks during the bear market of 1973 to 1977, you would have ended up with $6,903, according to T. Rowe Price, the Baltimore mutual fund company. By contrast, investing the entire $6,000 at the start of that five-year cycle would have left you with $5,940, or $60 less than you began with. "Your goal should be to invest your money gradually over several years, not just within a few months," says Harold Evensky, a financial planner in Coral Gables, Fla. "Otherwise you may not buy during a down period, which is the advantage of dollar-cost averaging."

To help you choose the top funds for steady saving, we asked more than a dozen financial advisers and fund experts which funds on our top performers list are especially good buys now. The five standouts profiled here have all beaten the average stock fund return over the past five years without taking on excessive risk or levying high fees. And all are headed by managers who have been on board for at least three years. They are presented in descending order of five-year dollar-cost-average return.

Westwood Equity. This $150 million fund is a hidden gem. Launched in 1987, Westwood Equity gained an annualized dollar-cost average return of 44.1% over the five years that ended Oct. 31, tops for any fund open to investors that entire time. Manager Susan Byrne, 51, scoops up fast-growing but undervalued mid-size and large companies. To find these bargains, she looks for stocks whose earnings exceed analysts' expectations but whose price/earnings ratios are below the firms' projected growth rate. (For more on Byrne's strategy and current favorites, see the profile on page 141.) Dividing assets equally among the fund's 45 stocks, Byrne has a 16% stake in energy companies, including $1.9 billion Burlington Resources, and another 12% in telephone stocks, including $23 billion GTE. This summer, in anticipation of falling interest rates and a sluggish stock market, she put 8% of assets into intermediate government bonds. "As it turns out, over the past two months, my bondholdings have beaten the market," Byrne says.

Safeco Growth. Don't look for esoteric technology companies in this $595 million small-stock fund, which was previously recommended in MONEY in December. "I only invest in what I can understand," says manager Tom Maguire, 44. Like Byrne, he seeks out stocks selling at a discount to their earnings growth rate. That strategy leads him to fill his portfolio with 102 stocks, mainly small companies (median market value: $152 million) that Wall Street has overlooked, such as $500 million Chancellor Media, a Dallas-based operator of radio stations. A health-care analyst as well, Maguire certainly feels at home in the medical sector, which accounts for 23% of assets. One favorite is $57 million Lifeline Systems, a manufacturer and provider of personal emergency-response systems. "This company moves up slowly but consistently," says Maguire. "And when the market sells off, it hangs in there." The same could be said for Safeco Growth. Over the past five years, Maguire has piloted this fund to a dollar-cost average return of 43% with 17% less volatility than its peers.

Vista Large Cap Equity. To select stocks for this $163 million portfolio, manager Gregory Adams, 32, blends quantitative analysis and fundamental research. He screens a computer database of 600 large companies to find those that combine value characteristics (like low price-to-cash-flow ratios) and growth qualities (such as rising earnings). Then he analyzes the firms' business prospects to select roughly 100 stocks. To keep volatility low, Adams, who has led the fund since 1994, does not invest more than 3% of assets in any one company. Lately, he has spotted buys among retail and media businesses, which make up 14% of the portfolio. Among his top picks is $15.7 billion Federated Department Stores. Adams' single largest stake is $20.8 billion Dow Chemical, at 2% of assets. "With the turmoil in Asia, foreign production of chemicals such as ethylene will be lower than expected," says Adams. "And that will benefit big producers like Dow." Over the past five years, this fund has delivered 38.8% average annual returns to dollar-cost averagers with 10% less risk than its peers.

Smith Breeden Equity Plus. This $70 million portfolio is an enhanced index fund, which means the fund targets the S&P 500 stock index, not simply to track it but to beat it. To do that, manager John Sprow, 33, purchases S&P 500 futures contracts. An index futures contract in theory obligates you to buy the stocks in the index at a fixed price at a certain time. In practice, every day of the contract you either pay or receive money from the seller depending on how the market has moved. Since buying futures ties up only a small portion of the fund's assets, Sprow invests the rest of his money in mortgage-backed securities, a specialty of Smith Breeden, an institutional investment firm with Nobel prize-winning economists William Sharpe and Myron Scholes on its board. Using computer models that estimate the speed at which homeowners will prepay their mortgages, Sprow scours for undervalued mortgage bonds. In the notoriously complicated mortgage market, "whoever has the best prepayment models wins," he says. Over the past five years, Smith Breeden's computer firepower has helped the fund rack up a 38.6% dollar-cost-average return and a 20.6% total return, vs. 26.6% and 19.7% respectively for the leading S&P 500 index fund, Vanguard Index Trust 500 Portfolio.

Sound Shore. Gibbs Kane, 50, and Harry Burn, 53, co-managers of this $1.1 billion fund, are flexible value investors, which means they troll for bargains but don't limit themselves to stocks that meet certain financial criteria. "We look for stocks that are out of sync with what's in vogue on Wall Street," says Kane. Indeed, the fund loads up on fallen growth companies selling at relatively cheap prices. Like Westwood's Byrne, Kane and Burn invest roughly equal amounts into each of their 40 medium-size and large stocks, which the managers believe have the potential to rebound. "We can't say which horse will win the race," says Kane, "so we bet the same amount on all of them." Recently the team put a 3.5% stake into $9.3 billion (assets) Banc One, whose earnings have been weakened temporarily by recent acquisitions. The managers also peg $11.6 billion Toys R Us to come roaring back, thanks to revamped stores and more robust toy demand. Over the past 10 years, Sound Shore has consistently ranked in the top 20% of its large-company growth funds. That kind of performance should help sustain your serenity, no matter how often you invest.