Being Smart with $$ -- Top Performing Mutual Funds Should Often Be Avoided

Buying “Top Performing Mutual Funds” is often a way to lose money.  You might be tempted to buy the #1 name in large-cap stock funds for the last year listed in financial journals.  But wait, look closer at that fund listed as the top 1-year performer in Kiplinger’s 03/2019 issue and after some investigation you’ll find it did far worse than its benchmark over the last 10 years.  A $10,000 investment in this fund 10 years ago might have grown to around $30,800 today.  But if you instead just bought a low-cost S&P 500 fund (the benchmark it is tasked with beating), you would have over $45,000 instead.  A lot of funds can beat their benchmark for a year, but doing it over 10 years has proven to be very hard to do for the vast majority of actively-managed funds.  So ignore the exciting headlines and buy low-cost funds that keep you invested for the long term.  If you are going to take on stock-market risk, you shouldn’t have to add the risk that you won’t get stock-market returns.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com