3 rules of smart mutual fund investing
originally posted: 11/22/2006 reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If in doubt, please send a new question or ask for an update.
Q: My mutual funds were doing great until a few months ago but now have dropped all the way back to where they were a year ago. Should I dump them or wait until the price recovers?
A: Most stock mutual funds were up by 15% or more over the past year until about February but then the market took a sharp drop in the past two months. The performance of your account is typical of the overall market and probably not a function of your specific fund managers. Just follow the three basic rules of smart mutual fund investing: 1) use a low cost no-load funds, 2) make sure the funds’ objectives and risks match your own goals, 3) if you do not clearly understand the first two rules, get independent professional help that is not based on commissions. Since the date this was written the markets have moved both sharply higher and lower. Most investors expect an average long term return to even out somewhere between 8% and 10% per year, but short term returns will continue to fluctuate widely.
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