04-01-2004, 2:07 PM | Post #108636 |
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Each year the American Association of Individual Investors publishes "The Individual Guide to the Top Mutual Funds." The "Guide" is full of sound advice. Here are a few excerpts:
"No one should put money into an investment that is not understood."
"While past performance is no indication of future performance, it may indicate the quality and consistency of fund management."
"If there is one ingredient to successful investing that is universally agreed upon, it is the benefit of diversification."
"Funds with loads, on average, consistently underperform no-load funds when the load is taken into consideration."
"For every high-performing load fund, there exists a similar no-load or low-load fund that can be purchased more cheaply."
"Avoiding funds with high expenses and unnecessary charges is important for long-term performance."
"The most important factor when diversifying a portfolio is selecting investments whose returns are not highly correlated."
"Bond mutual funds are attractive to investors because they provide diversification and liquidity, which is not as readily attainable in direct bond investments."
"One of the advantages of mutual fund investing is the wealth of information that mutual funds provide to fund investors and prospective investors."
"The prospectus is the single most important document produced by the mutual fund, and it is must-reading for investors before investing."
"The higher the turnover, the greater the brokerage costs incurred by the fund."
"The market risk measure used for common stocks is beta; for bond funds, average maturity is used."
"High-yield (junk) bond funds and international bond funds can be affected significantly by factors other than interest rates."
"While total return and risk are crucial, services play an important role in facilitating the investment process."
"The best way to build up your mutual fund assets is simply to put money to work on a regular basis."
"At 10% compounded annually, $100 invested at the beginning of each month would grow to $76,566 in 20 years; continuing the investments for just 5 additional years yields $133,780."
"Dollar-cost averaging works especially well with more volatile portfolios."
"Top Performance lists are dangerous."
"The classic response of funds that focus on small stocks is to migrate investments to mid-cap and large stocks when they start to achieve a large asset base."
"A flood of new money usually comes after a performance that garners widespread attention and is often difficult to replacate."
"Don't forget that almost all fund performance data is reported without adjusting for front-end or back-end loads."
"While finding funds that will be top performers in their category before the fact is daunting, avoiding disastrous fund investments is within reach."
"Nobody, but nobody, has consistently guessed the direction of the bond or stock market over any meaningful length of time."
"One reason beyond low expense ratios that make index funds are tough to beat is that they are always 100% invested in the market."
"Being ready for bull markets is more important than avoiding bear markets."
"You would be surprised how many new funds are quietly buried and new fund managers transferred after the first few disappointing years."
"The benefits of diversification are difficult to achieve with commitments of less than 10% of your portfolio to any one area."
"Diversification implies a range of around four to nine funds--all unique in investment objective and security coverage."
Originally posted in thread: 34108