Sarah Neudorf January 16, 2020 Mutual Fund
With over 6,000 mutual funds available, it may be tempting to pick funds from a popular star or index rating system. Savvy investors, however, balance multiple factors in their selection process. Ratings represent only the historical performance of funds and cannot predict the future. Performance consistency, management skill, and expense limitations are among the many factors that influence a funds prospects. Each must be carefully evaluated to improve your chances of finding a fund to outperform the market.
Spreadsheets & Formulas I have known plenty of investors who have invested extensive time, money and research into choosing their mutual funds. They have devised their own systems, using complex formulas and spreadsheets to allow them to make the right choice about their mutual funds. Ultimately however, this begs the question: If you have to do all this research, why are you buying mutual funds in the first place? For the amount of time you are spending on your decisions, you could buy individual stocks and not pay a money manager a fee.
There are websites that can provide you with daily, monthly and historical mutual fund data. You can also view the performance charts of a particular fund and compare funds against each other. This is an easy way to find the one that is best for you.
But you have to remember those special mutual fund factors: minimum holding requirements once you buy a fund; short-term penalty fees if you sell too soon, and a possible frozen account if you re-buy a recently sold fund or funds too soon within 12 months. In other words either you or your software must track or base your selling and buying decisions upon how long you have owned a fund with a re-buy restriction on recently sold funds so you do not get caught in the round-trip trap.