Birgit Kuester February 23, 2020 Mutual Fund
When investing in mutual funds, you should check around for different accounts that may be available. Some require you to place cash up front and others may not require any cash to open the account. You should do an extensive detailed search to find an account that fits your needs as well as your bank account. Your best research tool is the World Wide Web and it is right at your finger tips 24 hours a day, seven days a week.
Most fund ratings are determined by the past performance of the company making the mutual funds available. The mutual funds performance is commonly tracked for a period of five to ten years in order to have a developed pattern emerge as to the performance. Being as the past is sometimes an indication of what the future holds it stands to reason that it should indicate future performance. This is not entirely the case as it is known that unless you can see into the future you will not know what the future holds with certainty.
READ CLOSELY: How do all these fund costs affect you? Well, with the expense ratio which averages 1.6% per year, sales charges 0.5%, turnover generated portfolio transactions costs 0.7%, and opportunity costs - when funds hold cash rather than remain fully invested in stocks - 0.3%. The average mutual fund investor loses 3.1% of their investment returns to these costs each and every year. While this might not seem like much on the surface, costs would consume 31% of a 10% market return. Add in the 1.5% capital gains tax bill that the average fund investor pays each year, and that figure shoots up to 46%, nearly half of a potential 10% return. Do you feel like you are taking one or two steps back while trying to go forward yet?
Dismiss recent results Past performance is no indicator of future results. No truer words could ever be spoken and they are included in every mutual fund advertisement. But it is extremely difficult to ignore these numbers which the fund companies conveniently place in big bold letters - immediately above the fine print warning us. Nothing is more attractive than a fund with a great record, especially given the dismal performance in the market.
Mutual Fund Companies - These companies allow you to open up a Roth IRA and then choose which of their mutual funds you would like to invest your money in. If you are diligent in keeping up with how the funds are performing, you can switch your money from one fund to another easily. MSN Money`s Start Investing message board from participants in plans that offer C shares of mediocre mutual funds.
Past performance can provide a good starting point, but nothing more. In fact, past performance predicts losers better than the winners. A 1998 study from fund-tracking firm Morningstar, demonstrated the top fund performers rarely hold their spot on the charts. The study also concludes bottom performers rarely did anything but continue to sink. Never assume the past will repeat itself, yet, ignore a fund`s historical record at your own peril. Avoid the perennial losers.