3 Reasons Why Your Mutual Fund Returns Will Always Stink
Getting good returns on your mutual fund might seem like a joke these days. Most mutual funds have terrible performance, and there are a few reasons why. Government regulations have a lot to do with it, and the industry has gotten lazy and inefficient. As a result, investors have suffered with returns that barely match inflation.
There are some ways that you can try to get better mutual fund returns, but, don't look for these products to be the panacea that they are pitched as.
Your mutual funds are probably posting inflated returns. By not paying attention to past performance numbers that are posted by the fund company, and instead asking an independent adviser to help you calculate your true return, you'll get a better idea of how you're doing. The fund typically shows you the simple average instead of the compound average which will result is higher returns on paper. It's good for business but not for your portfolio.
If you have a scientific calculator or a lot of time on your hands to do it manually, you can calculate the compounded return over time for these (or any) investment.
An alternative to trying to get more out of mutual funds is to get rid of them. One of the basic rules of investing is to understand what you are investing in. Most people don't understand mutual funds. They don't understand every business that the mutual fund holds. Even most financial advisers don't understand the businesses that the mutual funds they sell holds.
One final point to consider is choosing mutual funds that invest in value stocks or smaller companies. Also, if your fund itself is small, that can be a big plus. If the fees are low, and the fund is small, under the right management you could end up seeing strong growth that will help your portfolio overcome years of lackluster performance.
There are some ways that you can try to get better mutual fund returns, but, don't look for these products to be the panacea that they are pitched as.
Your mutual funds are probably posting inflated returns. By not paying attention to past performance numbers that are posted by the fund company, and instead asking an independent adviser to help you calculate your true return, you'll get a better idea of how you're doing. The fund typically shows you the simple average instead of the compound average which will result is higher returns on paper. It's good for business but not for your portfolio.
If you have a scientific calculator or a lot of time on your hands to do it manually, you can calculate the compounded return over time for these (or any) investment.
An alternative to trying to get more out of mutual funds is to get rid of them. One of the basic rules of investing is to understand what you are investing in. Most people don't understand mutual funds. They don't understand every business that the mutual fund holds. Even most financial advisers don't understand the businesses that the mutual funds they sell holds.
One final point to consider is choosing mutual funds that invest in value stocks or smaller companies. Also, if your fund itself is small, that can be a big plus. If the fees are low, and the fund is small, under the right management you could end up seeing strong growth that will help your portfolio overcome years of lackluster performance.
About the Author:
Author: Only so much information can be covered in one article. If you want more information about any aspect of personal financial planning, please visit David's website.
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4:07 AM
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