Heike Moeller February 24, 2020 Mutual Fund
Stay Out of the Money Market Fund or Stable Value Funds - such funds are great if you are building an emergency cash reserve or saving for your summer vacation, but if your investment time horizon is long, putting your money in such vehicles is a poor decision. When the price is below the average you use, be in the Money Market, or stable value option that does not lose money! Move your investments to the stable option as soon as the indexes and funds move below the average you use.
The four-letter word that no business can live with out and is referred to as the lifeblood of any business is CASH. Accordingly, the individual investor is better served when they think like a business and create cash flows to deploy with leverage into arbitrages. What did he just say? If these terms are foreign to you and you claim to be an investor you better go look them up because they are as old as salt in the financial world and are the best investment advice three self-made billionaires on Forbes 400 ever heard. If you do not know how to enlist cash flow, arbitrage and leverage into your investment plan then seek out a firm that does before it is too late.
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
Seek consistency Evaluate a mutual fund`s performance beyond just the recent year. Any fund can get lucky, but it`s the rare firm that prove themselves year after year. Examining a fund`s long term performance can answer the question of consistency. If the performance was good, was it repeatable due to skill - or merely a spike due to dumb luck?
Once you have discovered which index your fund tends to follow it will be obvious on the charts then pick one or two funds that follow the $RUT, one or two that follow the $MID, one or two that follow the EFA foreign funds are usually easy to spot by their names , and finally one or two that follow the NASDAQ.
These two lists illustrate just nine (9) possible groups. The next step is to either use software that enables you to find the best future performers within each group or perform fundamental analysis, studying the track record of the manager and his longevity managing the fund as one basic fundamental method. Technical analysis of the funds performance as compared to the markets as a whole is the method I use. You also need rules for when to sell and when to hold, because failing to sell when you should is what creates losses in your pocketbook.