...anyone here follow Motley Fool? TYC mentioned in passing...
BTW ... I am not a big fan of "mutual funds"
Best. Investments. Ever.
fool.com
Shannon Zimmerman
June 20, 2007
Quick: What's the investment vehicle of choice for more than 90 million Americans?
If you said "mutual funds," give yourself a gold star and head to the front of the cubicle.
Here's another quick one: Are funds so popular because, to pick up on our headline, they're the best investment vehicles ever?
Peaceful, easy feeling
To my way of thinking the answer is yes -- or, more precisely, yes, they can be.
The kind of funds worth building your portfolio around make it a cinch to spread your bets across value-priced big boys such as Johnson & Johnson (NYSE: JNJ) and Tyco International (NYSE: TYC) -- long-haul overachievers with price-to-earnings (P/E) ratios that fall below those of the broader market's -- and racier fare such as Apple (Nasdaq: AAPL), Applied Materials (Nasdaq: AMAT), and Broadcom (Nasdaq: BRCM). That particular power trio sports earnings-growth forecasts in excess of 15% over the next five years.
If you're looking for a no-brainer solution, funds make that a breeze, too -- and you won't have to pay up for the privilege, either. SPDRs (AMEX: SPY) -- the S&P 500-tracking ETF -- sports an expense ratio of just 0.08%. Vanguard 500 (FUND: VFINX) -- a traditional mutual fund that also tracks the S&P -- costs just 0.18%.
The upshot, then, is this: Well-chosen funds make light work of building a carefully calibrated portfolio. They're the most convenient vehicles for investing in asset classes that may lie outside your "circle of competence," too, which is generally a good idea: Doing so can allow you to sleep peacefully at night, secure in the knowledge that folks who do understand, say, emerging markets and high-yield bonds, are busy building your nest egg.
Reality bites
That said, when it comes to investing, mere convenience doesn't cut it as a thesis. And fund fan that I am, I'm also a realist: Another key reason funds are so popular is that they're ubiquitous. 401(k) plans, after all, are lousy with them -- with an emphasis on the "lousy." And that goes double for the industry's typical entrant, a fund that likely requires shareholders to pay for the privilege of underperformance.
How to separate the keepers from the duds in you plan's -- or your brokerage's -- lineup? Keep the following points in mind, and you'll go a long way toward doing just that:
* With funds, it's really the manager you're investing in. Don't focus on past performance unless that track record belongs to the person who's currently calling the fund's shots.
* Look for low price tags. Unlike any other product, with funds, the price you pay is a feature of "product" itself. The more you pay, the worse your performance will be; and the less you pay, the more moola you'll have compounding, as opposed to fattening the fund company's coffers.
* Last but not least: Favor funds with proven strategies and managers who "eat their own cooking" by investing their own moola alongside that of their shareholders. |
