Besides 5 and 10 year returns, expense ratios, load/no load, risk, and manager tenure, what else should I look for?
If a fund has had a 10% return rate, does that mean that an investor will have actually realized a 10% increase on his investment (before capital gains tax), or are there other deductions from that figure?
Are all the expenses included in the expense ratio, or are there "hidden" expenses, and how does one uncover those?
I look for the past performance, but only back as far as 5 years. I'd like to have the fund manager in place for at least 5 years, and an expense ratio below 2%. I don't see the point of load funds, seems like there are plenty that perform as well without the load, and you start out in the hole with an "A" fund.
The catagory you invest in will detemine to a large part what your returns will be. They drift in and out of favor. Currently emerging markets, and energy are doing well, and should for the near future. In the past it's been health care, technology and real estate. You get the picture. Don't be afraid to change sectors if you see the need. Get a Morningstar account and do your own research.
Go with a family of funds that has a good long-term reputation. That way you can switch from one type of fund to another without a lot of hassle. I did some research and settled on T. Rowe Price and am satisfied.
I hold a few T Rowe funds, but my trading account is with TD Ameritrade, formerly TD Waterhouse. You can trade funds just as easily with them as with a T Rowe account, and they have more funds to choose from. T Rowe has a lot of great funds, but I wouldn't limit myself to what they sell unless there is some compelling reason. I know of none.
To answer a few of your original questions, the gain shown is the amount that you will net if you make no changes to the amount of shares you purchase. It will not reflect the dividends posted thoughout the year, I imagine it's because some people reinvest them, and some don't. It may just be an industry standard, but I don't know. There are no hidden fees unless you want to consider 12b1 fees which are computed as a part of the management fee structure.
Dartboard works. Morningstar.com (even the free version) works better.
I tend to invest directly with the company that owns the fund.
If I want a Dodge and Cox fund I go through them, same with my Fidelity, Vanguard, or Oakmark stuff. The only fund I've bought through another company was a Mathews fund which was a no tranaction fee fund through Fidelity.
Stick to No-Load funds.
historical returns should only be consulted for "go anywhere" broad market funds. picking a fund soley based on recent past returns is a sure way to underperform in the future.
note that using historical returns can mislead you. in fact, you should strive to buy whatever is currently out of fashion. eventually, it will come around. one way to do it is to consult the following two charts...
periodic table of investments
another periodic table via a very long link
other things i would look at when looking for a fund:
- where is your investment portfolio heavy right now?
- where is your investment portfolio light right now?
- what is the style box of the fund and how does it fit with above?
- how far in the future do you expect to need the money?
see, for example, the 2nd post in
some of the information presented above this post is slightly incorrect. if a fund company advertises a 10% historical return, they are talking about "total return net of expenses". total return thus includes capital gains and dividends and any other ways they made money (swaps, hedges, etc), less expenses. hence it is a reasonable indicator of how the fund did. note that because a mutual fund must pass-through taxes, the way that the return is presented back to you is instrumental in what *your* after tax return looks like. read on.
for no-load funds without a 12b-1 fee, the ER encompasses the total expenses of the fund. the ER is figured into and subtracted from the total return. note that some funds impose an early redemption fee (typ. 30, 60, or 90 days) to discourage frequent trading. IMHO this is a good idea as frequent fund trading, besides being counterproductive for the "trading" investor, increases costs for everyone else who owns the fund as well. so, do not be discouraged about funds with short term redemption fees -- this is the fund company looking out for you, the long term investor.
at this point in mutual fund evolution, there should be very few reasons for you to buy anything with a load nor anything with an ER above 1%.
the biggest "hidden" expense w.r.t. mutual funds is selecting inappropriate investments in a taxable account. since long term capital gains are taxed at 15% vs dividends at your marginal tax rate, you(*) should strive to avoid dividend-paying investments in a taxable account. there are many funds that are specifically constructed to be as tax efficient as possible -- look into these for use in taxable accounts. ETFs are also highly tax efficient. at the other end of the scale are bonds and REITs -- very tax inefficient.
of course, in a tax-advantaged account (IRA, Roth IRA, 401k, 403b, TSP), you can buy mutual funds at will as the IRS will not be dipping into your pocket at the end of the year.
(*) assuming you are not yet retired and are looking for capital appreciation rather than income.
For the average american who knows nothing about mutual funds, loaded funds can be of some help to them as they have a "advisor" who will constantly watch their investment and rebalance it when needed.
Legg Mason just came out w/ their lifestyle funds which carry a load (5.75 Front end plus .80 annual expense), however, they will rebalance your portfolio automatically, which to some, may be worth the higher expenses. Not to mention the men with thick glasses that run the funds and have since the 80's.
Go to Morningstar and check out Western Asset's Fixed Income portfolio manager... they voted him #1 manager of the year in his respected category.
Also check out morningstars October 23, 2006 article "10 of the best mutual fund Managers Around." LM's Bill Miller and Smith Barney's Richie Freeman. That's who I'm trusting w/ my money.
No Load = No Help
vanguard, fidelity, t.rowe price, and others offer the same type of auto-rebalancing lifestyle funds, albeit with no up front loads and with far lower ER's. there is no "advisor" per se associated with a load fund.
look, this is at least the 3rd time that i've asked you: DISCLOSE THAT YOU ARE EMPLOYED WITH OR A REPRESENTATIVE OF LEGG MASON WHEN YOU POST INFORMATION HERE ABOUT LEGG MASON.
Check out the TR 20xx funds at the companies ar-jedi listed, as they offer good diversification and automatic rebalancing based on your Target Retirement date.
Managed money vs. index, load vs. no-load: that is an ongoing debate nobody is going to win here...
The key to long term growth is diversification.
Also, do a little research on Coffee House investing. It's pretty interesting. It uses index funds.
Here's how the seven-fund Coffeehouse Portfolio works: Asset allocation is just 40% in an intermediate bond index fund and 10% in each of six equity index funds. Here's what it looks like with seven no-load Vanguard index funds:
(40%) Total Bond Market Index (VBMFX)
(10%) Vanguard 500 Index (VFINX)
(10%) Large-Cap Value Index (VIVAX)
(10%) Small-Cap Index (NAESX)
(10%) Small-Cap Value Index (VISVX)
(10%) Total International Stock Index (VGTSX)
(10%) REIT Index (VGSIX)
I only invest in index funds and ETFs that track passive indexes. Active trading (on the part of fund managers) is a loser's game, all they do is line their pockets, and only line your pockets about half of the time.
Pick an allocation.
Buy index funds.
Forget about it.
Rebalance every year or two, if things drift too far out.
Sorry, don't mean to be disrespectful.
Loaded funds have no evidence of being better than no-load funds. Many "advisors" exist just to sell you stuff, and live on kickbacks from the funds; they have no duty to you (are not fiduciaries!).
Lifecycle funds are great. Buy a no-load low management cost one like one from Vanguard or Fidelity. It will rebalance itself, and you won't blow money on "advisors".
I respect your opinion B-D. One of the top "advisors" in our company also happens to live nearby. I really do think he earns his "kickbacks" as he watches his clients investments daily. He also knows that one should not be withdrawling 12% out of their nest egg like many have done... small things like that. Or how to stay in the lowest tax bracket when you are in retirement. Most poeple think they are set for retirement because they have their "401k". Sounds silly but it's true. They have no clue how a Roth IRA benefits them.
I am more worried about the future of this country in 30 years than I am about a small fee w/ my investments
If it wasn't for the excellent track record of these managers I wouldn't put my money with them nor recommend anybody else to.
Disclaimer: I work for a company that markets Legg Mason Partners, AIM, American Funds, Pioneer, Van Kampen, and Oppenheimer funds. I am sure there are more.
***An Investor should consider a fund's investment objectives, risks, charges and expenses carefully before investing. An investor should read the prospectus carefully before investing.
Check out "The Mutual Fund Show". They have a web site where you can listen to the past 4 programs. They are "for a fee" advisers and only recommend no load funds. It's a weekly radio program and a commercial for their services.
I'm going to move some of my funds to them to manage. I think they'll sell them and get me into some others. Some of my funds are real dogs.