A number of years ago, Money Magazine – a mutual fund advertising haven – ran a series of covers over several years (This isn’t exact, but you’ll get the general idea).
For example, the first year, the cover story was “The 15 Mutual Funds You MUST Own.”
The next year, the cover blared “Ten Mutual Funds to Buy Right Now.”
A year later, “5 Top Mutual Funds for Every Portfolio.”
And finally, “The Number One Mutual Fund Every Investor Should Own.”
Let’s say you followed the advice and bought all of these mutual funds. At the end of the 4 year period, how many mutual funds would you own?
Reading the titles you’d think that you’d hear about some of the same mutual funds each year, right? I mean, if it was a mutual fund that I MUST own last year, why wouldn’t it be a mutual fund to buy right now… this year?
The funny part was – each of these articles talked about DIFFERENT mutual funds. Not one mutual fund carried over from year to year… and so you’d now own 31 mutual funds! (At least they finally gave up and just publish its list of “The 70 Best Funds You Can Buy” each year… if you pick the wrong funds it’s YOUR fault!)
It used to be that investing meant picking a good stock or a good mutual fund and then holding on to it for years. You’d buy a few more shares when you had some additional money, but “buy and hold” was the way to go.
Now mutual fund ratings seem to get a lot of attention, but chasing highly rated mutual funds can be disastrous as well. If over the last ten years you bought only the best-rated mutual fund with the highest return for the previous year, you would have almost wiped out your portfolio!
What’s an investor to do? It all comes back to planning. When will you be using the money and what will you be using it for? Many experts are now recommending that only the money that is going to be used at least 15 to 20 years down the road (or maybe be passed on to your kids or grandkids) should be parked in risky investments like the stock market (and, yes, this includes just about ALL mutual funds).
In the meantime, don’t put too much credence in those headlines glaring at you from the news stand…they are designed to sell magazines, and every new mutual fund that comes out…NOT to keep your money safe!