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Looking at past mutual funds performance helps to (1) identify which funds have exceptional management and have been returning growth higher than their peers, as well as (2) identifying which sector funds have been performing exceptionally well or poorly. I find that if I make a conscious decision to evaluate my portfolio and then look for better opportunities then I'm able to earn a higher return for the year. It's easy with a busy schedule to overlook re-balancing of a portfolio, so I find that the end of the calendar year is an excellent time to set aside some time for evaluating mutual fund performance and making any adjustments in holdings as necessary.
One of my strategies has been to use resources to evaluate the top peforming funds. I look at both the 1-month return, 3-month return, 6-month return and annual return. In addition, I look at the 5-year return, 10-year return and 15-year return of top performing mutuals funds. This way I can try and avoid any mutual funds that have brief short-term returns and focus more on ones which demonstrate continued growth. Though new funds and sectors which may be in favor for the upcoming year should not be ignored. As an example, I have read many articles which suggest that agricultural funds may be one of the hottest growth funds for 2008. This is a fairly new sector and therefore I cannot find any information on major funds past performance for the last 10 or 15 years. However, if I believe that this is one of the hottest areas for mutual funds then I would not ignore this sector simply because I can't find track records of mutual funds which have operated in this sector for a long period of time.
I find that by starting with Globe Fund analysis tool is the best starting point for evaluating Mutual Funds. Generally I click 'top movers' and find the list of best performing mutual funds. I go through the list of top movers and research each fund that I'm interested in. I pay particular attention to sector funds for key areas in which I believe there lies serious growth potential. I note that certain funds have high 10 Year Avg Compound Returns. I try to identify first which sectors I am interested in investing in. Next, I try and select the right Mutual Fund company whose fund I would like to purchase. Globe Fund is only my starting point. Before I actually purchase any fund I visit the Mutual Fund company's website and I read through their prospectus and reports.
Once I've thoroughly read through the prospectus and reports provided by the Mutual Fund company offering the fund in which I'm interested then I make a purchase. I keep in mind that past performance is by no means any indication of future performance. For instance, during the dot-com boom there were funds reporting over 100% annual returns. When the dot-com boom went bust then these same funds returned negative 80% growth in the subsequent year. It's not a good idea to invest in fads. A better idea is to find funds with a proven track record which are not investing in just the current hyped up sector.
For 2008 many economists and financial advisors are predicting a further softening of the economy. As such, I would incorporate some defensive planning. Defensive planning may include investing in Dividend Funds, Money Market Funds, Large-Cap Stock Funds, Bear-Market Funds, etc. I find that it's good to put a part of my holdings in Cash or near-cash so that (1) part of my assets are protected from market downturns and (2) I have cash to buy-in should the market experience a downturn. Different advisors will offer different opinions on how much of your portfolio should be invested in stocks, bonds and cash.
Disclaimer: This article is not designed to solicit the sale of any mutual funds. Mutual funds may be risky and can ownership can result in loss of partial or entire capital. Consult a financial advisor prior to purchasing any mutual funds.
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