What
You Know About One-Year Performance Can Hurt You
Pick
up a magazine aimed at do-it-yourself investors and you are likely to see
headlines like this: "Top 10 Mutual Fund Picks This Year" or "Add
Last Year's Top Mutual Funds to Your Portfolio."
Of
course, when you add a new mutual fund to your portfolio, you want one that has
a top-notch record — but performance is only one facet to consider
because past results are not indicative of future performance. Ideally, your
personal goals and situation should be critical in the decision-making process.
To understand why, take this little pop quiz.
International
funds, small-cap funds, and blue-chip mutual funds have different objectives and
risk levels. The one trait they have in common is that they are not appropriate
for all investors.
Choosing
a mutual fund for your portfolio begins with your financial strategy. Consider
such factors as how much you need to save for retirement, the time remaining
before you will need the money, and your comfort level with investment risk.
Next, do
the specific funds you are considering have objectives compatible with your own?
How will they affect the diversification within your portfolio? What is the risk
that they won't be able to help you reach your goals?
When
selecting a mutual fund for your portfolio, it's wise to get all the facts. We
can help you factor in the variables for your situation.
Note:
There are expenses associated with investing in mutual funds, including
portfolio management fees and expenses and sales charges. Mutual funds are sold
only by prospectus, which contains more information about the investment company
as well as the objectives, risks, charges, and expenses of the fund. Investors
should read the prospectus carefully before investing.
Source:
Wiesenberger, 2004. One-year performance is for the period 12/31/1985 to
12/31/1986; 5-year performance is for the period 12/31/1986 to 12/31/1991;
20-year performance is for the period 12/31/1983 to 12/31/2003. Rates of return
will vary over time, particularly for long-term investments. Actual results will
vary.
International
funds are represented by the Thomson U.S. Non-U.S. Equity Mutual Fund Index.
Small-cap funds are represented by the Thomson U.S. Small-Cap Mutual Fund Index.
Blue-chip mutual funds are represented by the Thomson U.S. Growth and Income
Mutual Fund Index. The performance of an unmanaged index is not indicative of
the performance of any particular investment. Individuals cannot invest directly
in an index. Foreign securities involve risks in addition to those associated
with domestic securities, including foreign currency risks and political
uncertainty. Investing in small-cap companies may involve risks in addition to
those associated with large-cap companies. Investments seeking to achieve higher
rates of return also involve a higher degree of risk.
