Sophie Moench February 13, 2020 Mutual Fund
However, having real property as an investment does not mean you do not manage it. What do I mean? You have to be responsible and manage your equity that your home accrues and if you have investment properties, you have to manage those properties like an investment portfolio with precision planning so that it does not create a negative cash flow because cash is king. In the business world, businesses that fail to manage their cash flow properly often fail to survive. Similarly, where individuals or families fail to manage their cash flows properly they end up in the same place, bankruptcy court.
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.
This essay is to enlighten investors on what they are getting into if they are relying on mutual funds as a way to provide for their financial freedom at the time of retirement. Due to the complexities of following stocks and finding competent money management, unless you are a multi-millionaire, many Americans have turned to the quick fix known as a 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.
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.
Index Funds Of course for many of us, our primary investment vehicles are index funds. These are funds which are designed to match the performance of a major stock index. This takes the decision making away from a money manager. It also makes deciding on a fund very easy. If I want to match the market, I simply buy the index I want to match and move on with my life. In many ways this is a win-win.