|
|
By Richard Loth (Contact | Biography)
Many investors tend to focus on a mutual fund's historical performance as oppsoed to considering its underlying portfolio characteristics. With individual investors, whether these are stock, bond, or fund investors, return is the holy grail of their approach to investing. However, while an investment's return is certainly an important consideration, it would be best to first start with looking at an investment's fundamentals. After all, strong, consistent investment qualities are what produce top-rated investment performance, not vice versa. (For more insight, read The Truth Behind Mutual Fund Returns.)
With mutual fund investing, it is particularly important to look at all the components of investment quality and not just performance alone. There is too much hype and misleading information in mutual fund advertising. In this regard, the most abused metric in fund marketing materials is performance data.
The financial media continuously bombard us with what's "hot," be that a particular fund or fund category. The personal finance magazines are filled with eye-grabbing headlines about what to invest in now, next month and next year. The pervasive investment community habit of focusing on the short-term displaces investment fundamentals for big, immediate returns as selection criteria.
Too many mutual funds enjoy a very short period of success. The record books are full of superstars that disappear from one year to the next. Therefore, remember these two key points when considering fund performance as an investment quality:
Mutual Fund Performance Data
Many investors tend to focus on a mutual fund's historical performance as oppsoed to considering its underlying portfolio characteristics. With individual investors, whether these are stock, bond, or fund investors, return is the holy grail of their approach to investing. However, while an investment's return is certainly an important consideration, it would be best to first start with looking at an investment's fundamentals. After all, strong, consistent investment qualities are what produce top-rated investment performance, not vice versa. (For more insight, read The Truth Behind Mutual Fund Returns.)
With mutual fund investing, it is particularly important to look at all the components of investment quality and not just performance alone. There is too much hype and misleading information in mutual fund advertising. In this regard, the most abused metric in fund marketing materials is performance data.
The financial media continuously bombard us with what's "hot," be that a particular fund or fund category. The personal finance magazines are filled with eye-grabbing headlines about what to invest in now, next month and next year. The pervasive investment community habit of focusing on the short-term displaces investment fundamentals for big, immediate returns as selection criteria.
Too many mutual funds enjoy a very short period of success. The record books are full of superstars that disappear from one year to the next. Therefore, remember these two key points when considering fund performance as an investment quality:
- Top performance is the product of favorable indicators.
- To rely on performance figures, they need to be established over a relatively long period of time.
Mutual Fund Performance Data
Related Articles
-
Investing
What You Need to Know About Mutual Funds
Mutual funds are a good investment opportunity, but investors should know how they operate. -
Investing
Scoring Fund Investment Quality
Learn some background on mutual funds and what factors can be used to assess their investment quality. -
Financial Advisor
5 Characteristics of Strong Mutual Fund Shares
Discover some of the basic characteristics shared by good mutual funds that investors can use to help them in selecting funds. -
Investing
The Advantages and Disadvantages of Mutual Funds
As with most investments, mutual funds have both advantages and disadvantages. -
Investing
Consider These Fees When Evaluating Mutual Funds
The best way to evaluate a mutual fund is by digging a bit deeper into the fees charged. -
Financial Advisor
An Introduction To Mutual Funds
Mutual funds are the starting point for many individual investors because they offer a balanced portfolio in a single investment. Find out how mutual funds work and whether they are the investment ... -
Investing
How Much Company Stock Can a Mutual Fund Own?
There is no written rule that stipulates how much of a company a mutual fund can own.