Sarah Neudorf February 13, 2020 Mutual Fund
Watch for a solid record of returns, rather than funds showing spurts of great years followed by fits of lousy ones. Compare the funds returns to a relevant benchmark index, (large-cap vs. S&P 500, small-cap to the Russell Index, etc.) Solid funds should not only consistently beat the benchmarks, they should also beat their peers.
One way around the round-trip trap is instead of buying the same fund back (because now that energy fund is going up again) is to buy a similar fund from a different mutual fund family; in other words switch from ABC fund company to XYZ, as an example.
Another thing to keep in mind is not to buy loaded funds. These are funds that have sales charges attached to them. If you purchase these types of finds, you will be paying sales charges on top of other fees. Do not forget to overlook the mutual funds risk factor. If the fund looks to unstable over the years, or shows signs of it being too risky, do not get involved. And also check with the SEC to make sure the company is decent and has a good reputation.
Unless you have a crystal ball or a time machine, accurately predicting the future gyrations of a stock or the markets is nearly impossible. It may be slightly easier to follow the trend and reallocate your assets close to bottoms and close to tops, but if you are an average investor, you do not have the time, temperament or training to do it well. Most financial and investment advisers do not either.
When you work with mutual funds you can manage them better. You normally do not buy mutual funds directly. Instead you hire a professional manager to care for your purchase. These managers know how to care for the fund and have credentials to prove it. Buy having mutual funds you can keep track of them easier. This is because you only have one portfolio to deal with instead of perhaps hundreds of stocks. And if you need money quickly, you can go with mutual funds because they are very liquid.
If any of this scares you, rethink your investments. The asset allocation model where they show you a pie chart with so many stocks, so many bonds and maybe 3% cash is a failure. This was designed for institutions with 100% investible assets, not for individuals with lifestyle needs and expenses. You will never see any real estate in that pie chart, yet for most Americans, their home is worth more than their other investments