What are the best ways to find the best mutual funds? What are the criteria for the best funds that I should look for? What categories of funds or fund families are the best? These are the most important questions when one goes out to try and find the best growth or bond fund. Some of the best sites for mutual fund research are: Morningstar (easily the most famous), others are magazine type web sites such as money magazine, motley fool, etc. As far as what actually makes a great fund?
Expense ratio (which is the ratio of what they charge to run the fund as opposed to the total amount invested), a long history of success, and most importantly (in my opinion) how well the fund has done in bad times! For instance, in the incredibly disastrous year of 2008, if a fund did not lose more than 10% or stayed equal (regardless of whether that fund was a growth fund or a bond fund), then this fund should be considered an “all weather” fund, because the year 2008 is the acid test for mutual funds for all time, or what they are now calling it, a “Generational Low” in the stock market.
Some analysts and financial experts have been saying that mutual fund investing is for the birds, a suckers bet. I totally disagree. I believe that all investors should have a portion of their portfolio in grown and bond mutual funds, and a separate part of their portfolio in a very low priced discount broker with the best commissions. This way if you’re wrong on one end of your portfolio, you might be right in the other.
Diversification is the key; it always has been and always will be. In the horrible years of 2000-2002, not being diversified in your portfolio, and too invested in tech funds, would have meant huge losses. Starting in March of 2000 the stock market started to go down and didn’t stop going down until October of 2002. At that point, the NASDAQ dropped from 5200 to 1100 and the Dow dropped from 11,700 to 7200! Not being diversified with those kinds of losses could have meant the end of your investing career. And has the year 2008 taught all of us, history DEFINITELY does repeat itself. IN my humble opinion one of the worst mistakes you can make in mutual fund investing is paying either a back end or front end fee. The number one rule of buying a mutual fund is never pay a front end or back end fee. Also remember to rebalance your portfolio every few months.