Jun 04 2012
How to Select a Mutual Fund, Basic Guide
One of the most common ways of selecting a mutual fund is to invest with the crowd in today’s hot funds. Unfortunately, jumping from one winning fund to another is a recipe for disaster. The mutual funds that the crowd follows typically have had a hot recent performance and tend to gather all the new mutual fund sales. Investors as a whole are primarily allocating their new investments to a small number of mutual funds and to a smaller number of mutual fund companies.
There are benefits to following the market leaders. Larger mutual fund companies and larger funds have the ability to reduce costs and attract the best professional money managers. However, the biggest limitation is that today’s better-selling mutual fund may not be tomorrow’s winner. This is true for any mutual fund but it seems to plague the best seller, and the one that garners the most attention, the most often.
So buying the equity fund that was yesterday’s best-seller isn’t a strategy that produces excellent returns. You do not have to go fully in the opposite direction and ignore these hot funds, but you should understand their limitations and strengths. They became best-selling funds because they have merit, but you have to access that merit within your own well-diversified portfolio, and not the crowd’s current investment trend.
How many clocks do you have at your home? Have you had a grandfather clock in your home? Well, as you might have realized, having a clock at home is very important. Nowadays, people consider a clock not only as a time signal but also as home decoration. It is absolutely true that a clock can be a perfect decoration for your home. This simply means that you will need to buy a clock that is not only reliable in telling time but also perfect in beautifying your home.
