Getting a better than average mutual fund return might seem like an oxymoron to some people. This is because most actively managed funds have pretty poor performance. It's not an accident. Government regulations have spurred an industry that has become increasingly inefficient, and as a result, has shown investors little more than inflation-matching returns.
While you may find some ways to boost your fund's returns, keep in mind that these products will most likely not be the panacea that you're told they are.
The first step in boosting the returns on your mutual funds is by ignoring the 1, 5, and 10 year historical returns that are posted by the fund company. Most of the time, these numbers are inflated anyway by showing you the simple average as opposed to the effective yield.
A financial calculator can help you figure out the compounded return of an investment but, unless you know how to do that, you're probably going to have a hard time trying to figure out what return you are actually getting.
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.
While you may find some ways to boost your fund's returns, keep in mind that these products will most likely not be the panacea that you're told they are.
The first step in boosting the returns on your mutual funds is by ignoring the 1, 5, and 10 year historical returns that are posted by the fund company. Most of the time, these numbers are inflated anyway by showing you the simple average as opposed to the effective yield.
A financial calculator can help you figure out the compounded return of an investment but, unless you know how to do that, you're probably going to have a hard time trying to figure out what return you are actually getting.
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.
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