It may seem shocking after just a few short years from the greatest market panic of our lifetime but major stock market indices are hitting new highs almost on a daily basis these days. Are you thinking of adding to your investment portfolio? Are mutual funds part of your strategy? FutureAdvisor helped me put together this simple infographic listing a few key points you’ll want to remember about mutual fund selection by digging deep into their 401k database.
Take a look below:
It’s hard to argue with the data when low fees correlate so strongly with high returns across so many different asset classes. Next time you look for a mutual fund, make sure to put fees amongst the very top of your priority list. Remember, the less Wall Street charges you, the more you keep!
Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.
They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.
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Anton is exactly right. Index investing is your best option.
PBS Frontline did a great investigative report on this a few months ago. You can watch the whole episode at http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/
There is a very simple logic behind why picking funds with the lower expense ratios usually results in better returns. Funds with low expense ratios are more than likely index funds, and index funds have been shown time and time again to outperform active funds in the long term.
So this strategy can be rephrased to say – focus only on index funds with low expense ratios and ignore all the other junk.
… and keep in mind that your broker makes his living off of getting you to trade in many instances!
I have not put my money in some high-risk funds, but in stable and old firms in international trade industries like engineering industry and hotels. The return and fees shall be relevant to each other.
Good inforgraphic! Way too many investors fail to look at the fees when they’re looking to invest in a mutual fund. They think it does not make that much of a difference. However, those fees do add up greatly over time. The difference between a low fee fund and one that is well over 1% can be huge over time.
I like this a lot. Cuts down the research I’d have to do to feel comfortable with my decisions pretty significantly 🙂
Besides fees having an impact on returns, investors trying to get in and out of funds at what they think is the right time kills returns as well. This behavior is a major reason for underperformance. Read the Dalbar study on this. The average investor in mutual funds gets less than half the return of the funds over all measured 20 year periods they studied. Why? They buy high (5 star funds) and sell low.
Best may be to buy low cost index funds and leave it alone. Most active funds do not beat the market over long periods of time.