When I was in high school, one of my teachers only had a handful of rules, and they were all 'don't's.' He would tell us 'don't forget to do your homework, don't get a girl pregnant, and don't forget to show up for class. And don't take too many bathroom breaks.' While a classroom with a bunch of 'do nots' may sound like a depressing place to be, it was actually quite liberating. As long as we didn't do a few things he forbid, we were in the clear. Likewise, when we're buying mutual funds, we should keep in mind a couple things that we should avoid.
First of all, we shouldn't think that buying 5, 10, or even 15 funds ensures diversification. It all depends on the type of funds you're buying--if you're buy 15 international mutual funds, you're going to be far less diversified than someone who buys an American fund, a bond fund, and an international fund. So quantity doesn't matter unless you're diversifying across asset classes.
Likewise, you should avoid mutual funds with high fees. Often, they don't meet your initial expectations--many even lag the market! And when you factor in the 2-3% expense cost of some of the more expensive funds, then you don't even have much of a chance of earning market average returns, let alone market beating returns. My Money Blog has put out some great posts about the type advice that you should avoid when looking to purchase a mutual fund: http://www.mymoneyblog.com/how-not-to-select-a-good-mutual-fund.html
No comments:
Post a Comment