Mutual funds are an excellent investment vehicle and should seriously be considered as part of your portfolio if you want to be a successful investor. The benefits of finding the best performing mutual funds will allow you to diversify your investments while significantly reducing your risk.
While the current trend is to simply look at the past performance of a particular fund, this method simply does not work as what was successful in the past may not work as well in the future. Even looking at trade volume is a poor indicator of how well a mutual fund will perform.
So given these circumstances, how can you absolutely determine the best performing mutual funds? The short answer is that the best mutual funds will depend on what you intend to invest in whether it is a fund that specializes in stocks or bonds, and also how much risk you're willing to take.
With that said, there are several companies that analyze in detail thousands of available funds and assign them rankings based on very specific criteria. One such company is Morningstar that uses a simple star rating system to rate particular funds based on past performance and current trading value.
Another place to finding the best performing mutual funds is Lipper Leader Fund ratings which is similar to Morningstar but does things a little bit differently. They use five criteria in rating funds from total return, consistent return, preservation, tax efficiency and expense.
These factors combined helped to draw up a better picture of how well a mutual fund has performed in the past and how likely it is to perform in the future. In addition, there are also business periodicals such as Business Week and the Wall Street Journal that offer invaluable insight into popular mutual funds.
The bottom line to finding the best performing mutual funds is to thoroughly do your research behind a fund that you are interested in and combining data from different sources as to whether the fund is a smart investment. Which fund you invest in ultimately depends on you.
One of the most essential factors is doing thorough research into the board of advisory. Be sure that they have a track record of proven success and that they have adequate experience.
Monday, August 10, 2009
Should You Put Your Money in Mutual Funds?
You've got money to invest. Where should you put it? How about you put it in a mutual fund?
Well , how's that been working for mutual fund investors lately? They are paying out about 1% to 2% a year and have a return for the last ten years of zero. The only way that game could go on and on without some sort of investor revolt is that thousands of fund managers making $100 billion a year in fees and commissions are brainwashing their clients into thinking they can't do better on their own. In fact, without any education at all, you can learn to do this on your own.
You can replace mutual funds with 'no fee' Exchange Traded Funds (ETFs). There is a fee but its almost zero. You won't believe what just eliminating the fee does to a long term investment. Invest $1000 a year from age 20 to age 65 in a mutual fund with a 2% fee and an 8% average return and you'll have $200,000 to retire on. Make the exact same investment without the fee in a market indexed ETF (like SPY, for example) with an 8% return and you'll have $400,000.
So no mutual funds. But what about ETFs as a long term investment? Good call if you get a good mix. There is more to discuss in an economic environment that could include major inflation and dollar devaluation. We'll get to that in another future article here on this website. For now, though, think ETF, not a mutual fund.
Well , how's that been working for mutual fund investors lately? They are paying out about 1% to 2% a year and have a return for the last ten years of zero. The only way that game could go on and on without some sort of investor revolt is that thousands of fund managers making $100 billion a year in fees and commissions are brainwashing their clients into thinking they can't do better on their own. In fact, without any education at all, you can learn to do this on your own.
You can replace mutual funds with 'no fee' Exchange Traded Funds (ETFs). There is a fee but its almost zero. You won't believe what just eliminating the fee does to a long term investment. Invest $1000 a year from age 20 to age 65 in a mutual fund with a 2% fee and an 8% average return and you'll have $200,000 to retire on. Make the exact same investment without the fee in a market indexed ETF (like SPY, for example) with an 8% return and you'll have $400,000.
So no mutual funds. But what about ETFs as a long term investment? Good call if you get a good mix. There is more to discuss in an economic environment that could include major inflation and dollar devaluation. We'll get to that in another future article here on this website. For now, though, think ETF, not a mutual fund.
Things to Consider Before Investing in Mutual Funds
It is believed that an investment does not have to be complicated and difficult. The following are some of the things that you should take into consideration when deciding on investing in a fund. It can be also applied when considering investing in a property investment.
Investment objective
Setting an objective is common regarded as one of the major factors when deciding whether to invest in a fund. If you are investing for wealth accumulation and capital growth, then you might to consider aggressive equity fund. On the contrary, if you are investing for your retirement fund and you are about to retire soon, then you should consider investing in bond fund because the risk is much lower as compared to equity fund.
So long as you have defined your investment objective, it would not be difficult to figure out the right fund to match your investment need.
Risk profile
As people always say, the higher the risk; the higher the return. There are always risks when it comes to investing, it doesn't matter whether it is property investment or investing in mutual funds.
There are various risks of investing in mutual funds. Examples of risks include country risk, currency risk, performance risk, interest rate risk, management risk, foreign market risk, inflation risk as well as management risk.
If your risk appetite is not high and you cannot take most of the risks that mentioned above, you are not advised to invest in equity funds because these funds tend to have higher risks as compared to bond funds.
Investment objective
Setting an objective is common regarded as one of the major factors when deciding whether to invest in a fund. If you are investing for wealth accumulation and capital growth, then you might to consider aggressive equity fund. On the contrary, if you are investing for your retirement fund and you are about to retire soon, then you should consider investing in bond fund because the risk is much lower as compared to equity fund.
So long as you have defined your investment objective, it would not be difficult to figure out the right fund to match your investment need.
Risk profile
As people always say, the higher the risk; the higher the return. There are always risks when it comes to investing, it doesn't matter whether it is property investment or investing in mutual funds.
There are various risks of investing in mutual funds. Examples of risks include country risk, currency risk, performance risk, interest rate risk, management risk, foreign market risk, inflation risk as well as management risk.
If your risk appetite is not high and you cannot take most of the risks that mentioned above, you are not advised to invest in equity funds because these funds tend to have higher risks as compared to bond funds.
Thursday, May 17, 2007
What is a mutual fund?
The idea behind a mutual fund is simple: Many people pool their money in a fund, which invests in various securities. Each investor shares proportionately in the fund's investment returns -- the income (dividends or interest) paid on the securities and any capital gains or losses caused by sales of securities the fund holds.
Every mutual fund has a manager, also called an investment adviser, who directs the fund's investments according to the fund's objective, such as long-term growth, high current income, or stability of principal. Depending on its objective, a fund may invest in stocks, bonds, cash investments, or a combination of these financial assets.
Every mutual fund has a manager, also called an investment adviser, who directs the fund's investments according to the fund's objective, such as long-term growth, high current income, or stability of principal. Depending on its objective, a fund may invest in stocks, bonds, cash investments, or a combination of these financial assets.
ADVANTAGES OF MUTUAL FUNDS
Mutual funds have become popular because they offer 4 advantages:
Diversification. A single mutual fund can hold securities from hundreds or even thousands of issuers, far more than most investors could afford on their own. This diversification sharply reduces the risk of a serious loss due to problems in a particular company or industry.
Professional management. Few investors have the time or expertise to manage their personal investments every day, to efficiently reinvest interest or dividend income, or to investigate the thousands of securities available in the financial markets. They prefer to rely on a mutual fund's investment adviser. With access to extensive research, market information, and skilled securities traders, the adviser decides which securities to buy and sell for the fund.
Liquidity. Shares in a mutual fund can be bought and sold any business day, so investors have easy access to their money. While many individual securities can also be bought and sold readily, others aren't widely traded. In those situations, it could take several days or even longer to build or sell a position.
Convenience. Mutual funds offer services that make investing easier. Fund shares can be bought or sold by mail, telephone, or the Internet, so you can easily move your money from one fund to another as your financial needs change. You can even schedule automatic investments into a fund from your bank account, or you can arrange automatic transfers from a fund to your bank account to meet expenses. Most major fund companies offer extensive recordkeeping services to help you track your transactions, complete your tax returns, and follow your funds' performance.
Diversification. A single mutual fund can hold securities from hundreds or even thousands of issuers, far more than most investors could afford on their own. This diversification sharply reduces the risk of a serious loss due to problems in a particular company or industry.
Professional management. Few investors have the time or expertise to manage their personal investments every day, to efficiently reinvest interest or dividend income, or to investigate the thousands of securities available in the financial markets. They prefer to rely on a mutual fund's investment adviser. With access to extensive research, market information, and skilled securities traders, the adviser decides which securities to buy and sell for the fund.
Liquidity. Shares in a mutual fund can be bought and sold any business day, so investors have easy access to their money. While many individual securities can also be bought and sold readily, others aren't widely traded. In those situations, it could take several days or even longer to build or sell a position.
Convenience. Mutual funds offer services that make investing easier. Fund shares can be bought or sold by mail, telephone, or the Internet, so you can easily move your money from one fund to another as your financial needs change. You can even schedule automatic investments into a fund from your bank account, or you can arrange automatic transfers from a fund to your bank account to meet expenses. Most major fund companies offer extensive recordkeeping services to help you track your transactions, complete your tax returns, and follow your funds' performance.
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