The top mutual funds are often found in the biggest and best fund companies or families. Don’t waste your time and effort working backwards in your search for the best or top funds to invest in. Get a handle on the world of mutual funds before you head off in the wrong direction.
There are thousands of stock funds and bond funds to choose from and hundreds of fund companies (families) that offer them. There are also lists published of the top mutual funds each year and of the biggest or best fund companies. You and I both know that terms like top and best are subjective. But “biggest”, in the world of mutual funds, has a more specific meaning and refers to dollar value of assets under management. Is bigger better, and are the biggest funds and fund companies the best?
From year to year the top mutual funds ranked by performance will vary considerably, especially for stock (equity) funds. Simply put, any fund can get lucky in a given year by taking a calculated risk; but that same fund is very unlikely to be a repeat performer the following year. Hence, scouring the top funds list each year and making selections based on past performance is a losing proposition. On top of that, you’ll end up switching funds and companies on an ongoing basis trying to stay on the top of the list. You’re working against yourself, and working backwards.
Something of value you may notice from scanning a top mutual funds list: the top funds tend to come from a select group of the biggest fund families. One reason for this is that these companies may offer in the neighborhood of 100 different funds or more vs. just a handful for the smaller competitors. The 10 biggest fund companies manage more than 50% of the money invested in mutual funds. A small company might get lucky once in a while and make the top funds list, but in the long run the big boys will come out on top. Start your selection process by focusing first on fund companies rather than on individual funds.
Decide whether you prefer to work with and pay for the services of a representative (adviser, planner) or to work directly with a fund company and save on the cost of investing. That will help you narrow the field. Then pick one or two fund companies to invest with. For example, the three biggest in the business are Vanguard, Fidelity, and American Funds. With Vanguard investors can work directly with the company and enjoy the lowest cost of investing in the business. American Funds are offered through representatives or advisers who charge directly and/or indirectly for their services, and Fidelity works both ways.
Once you have opened a mutual fund account with one of the biggest and best fund companies you’re in business. Now you and/or your adviser can search their list of funds offered for the top mutual funds that best fit your needs and financial objectives. Making changes in the future is as simple as a phone call. Having spent years in the business, it is my opinion that the best fund companies got to the top of the “biggest” list by offering a wide variety of quality funds and excellent service over a good number or years. They know that a good reputation is a top priority if they want to stay on top in this competitive business.
You don’t need to own the top mutual funds in each category to be a successful investor. Focus first on doing business with the best fund companies. Then pick funds they offer that have consistently performed well compared to their benchmarks and the competition, and fit your needs and objectives. You should invest in mutual funds for the long haul, not to speculate on last year’s top funds.
Source by James Leitz