5 Problems With Mutual Fund Past Performance
07/28/2010 0 comments
Craig Ford, writing for Moolanomy asks the question "How important is mutual fund past performance?"
His conclusion?
While the long term performance of a mutual fund may have some value, it is not the most important criteria.
He then goes on to cite five reasons to support his conclusion.
- The changing economic condition
- Unrepeatable returns
- Management and strategy changes
- Does the past dictate the future?
- The presentation of the facts
We think that ETF index funds provide a double whammy benefit:
- They give you excellent value for money -- low expense ratios and increasingly low commission or trading costs
- They support market indices which, in the long term, gives you a low cost way to good returns
Craig's summary:
One way to side step this historic performance pitfall is to buy index funds or index ETFs. If you don’t know the difference, here’s a comparison between actively-managed funds and index funds. Basically, index funds remove a lot of the guesswork. You don’t need to try to find a fund that will outperform the market. Moreover, they are less expensive than their actively-managed counterparts.
A five or six asset class ETF portfolio can deliver a five year annual rate of return of over 10% with the appropriate investment strategy. This compares very favorably to almost any mutual fund.
Tags: investment, mutual funds, ETF, retirement, IRA
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