Claudia Eggers February 25, 2020 Mutual Fund
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.
Unfortunately, history seems to suggest not. Despite the fact that tens of thousands of individuals make their professions trying to beat the markets, almost none of them do so on a consistent basis. Many will have good runs, but ultimately no one seems to have a proven formula for beating the markets. Usually the hero of a bull market turns into the villain once the market turns on him or her.
Taxes are often overlooked and can substantially reduce your after-tax gain unless investing within a tax-deferred, retirement account. Avoid funds with large distributions (capital gain payments) by searching for funds with low turnover. Since buying and selling stock incurs transaction costs, lower turnover translates to lower expenses and lower capital gains taxes. Fund managers who seek to boost returns through repeatedly buying and selling securities are no friend of yours.
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.
Along with the increased buying and selling activities of an active manager comes a higher expense charge for those trading and management costs. Most actively managed funds have a 50 to 100% higher operating expense ratio than the average index fund. If you are not getting better returns, this can cost plenty over time. Also if your quality manager leaves the fund, you may need to find a better alternative.
The recent explosion of an oil rig in the Gulf and the resulting chaos and environmental damage tells you that any company can all of a sudden be exposed to dramatic unforeseen risk. In this case it was BP. Mutual Funds can also possess much more risk than you thought you were encountering.