There are certain things that I look for in a mutual fund:
1) Low expenses. First, only use no-load mutual funds. Then try to keep the expenses below 1%, preferably even lower. Expenses are the single most important factor to increasing long-term growth. Remember from an earlier LevOn article, 4 of every 5 mutual funds do not outperform the market (S&P 500). So if you are justifying high fees for superior management, you are mistaken 80% of the time.
2) 5 and 10-year returns. Never chase last years winners. Always look for long-term sustainable returns; 1 and 3-year returns just don't provide any long-term picture of how a fund is doing. If a fund has outperformed the market (on average) for the last 10 years, it's safe to say they are doing something right.
3) Tenure of the fund manager. If a fund has a new manager it could mean a new investing prospective and therefore you may not be able to look at the past performance as a realistic judge of the future. Don't worry about the manager if it's an index fund.
4) Index funds. Blat out, they are sexy. Super low expenses (.19 for Vanguard 500) and remember: 4 of 5 mutual funds don't outperform the market.
5) Minimum investments. They matter. I can think a fund is great (Fidelity 500 Index Fund - .10% expenses - but, $10K minimum initial investment) but if it has a high minimum, I will probably never invest in it. One exception is a 401K rollover to a self-managed account (even in that case you should probably use ETFs)
So now you have my criteria. Tomorrow I will make it even easier. I will tell you what mutual funds I own and why.
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