7 Things to Consider Before You Buy a Mutual Fund
Posted by Gail | Filed under Investing
19 more sleeps until our Picnic in the Park on Sunday, July 11. Put it on your calendar today and remember to bring a little sumthin’ sumthin’ to eat that you’d like to share. Last year I did a big pesto vegi pasta salad. This year I’m thinking my watermelon/feta salad (yum!). For more details, see the end of this blog. If you’re planning on attending, comment “4 coming!” so we can get a sense of how many will be attending.
1. Know what you’re buying before you buy. If I’m beginning to sound like a broken record, it’s because this is the most important rule in investing and I can’t stress it enough. Although every piece of advertising clearly states that a mutual fund’s past performance is no predictor of future performance, virtually all investors pick funds based on how they have performed most recently. This is a mistake. Last year’s biggest winners are often not the big winners this year. And if you bought last year’s champion, you may have to sit through a year or two of lackluster performance before things pick up again.
2. Don’t be greedy. Typically, very high rates of return are associated with the more volatile funds. Rather than allowing yourself to be intrigued by a promise of 25, 30 or 40 percent returns, decide what you can live with relative to inflation and other investment returns and then look for an investment with a long-term track record of consistent performance. Compare any fund you’re considering with other funds in the same group or sector. There’s no point in comparing the ABC Gold Fund with the XYZ Pharmaceutical Fund.
3. Your mutual-fund purchase should fit in with the other investments you’ve made. Once you’ve determined the investment mix appropriate for you, stick with it.
4. Long-term results are the key to analyzing a mutual fund’s performance. Over the short term, almost every mutual fund can claim amazing results –– but over the long term, only the best-managed funds stand out. Don’t look simply at the average rate of return; you need to see how the fund has performed each year to see whether or not it has consistently met its objectives, so ask to see the fund’s year-over-year returns.
5. Ask how long the fund manager has been with the fund. A mutual fund is only as good as its management. If the fund manager has changed recently, wait a while before you buy to see how the fund performs under the new manager. That doesn’t mean that if the fund management has changed you should immediately jump out of the fund. However, it does mean that you should pay close attention to the fund’s performance. All else being equal, the performance shouldn’t change. If it does, then it may be time to for you to make a change.
6. Minimize the costs of changing your investments by choosing a good fund “family.” Many mutual-fund companies sell several different types of funds under the same brand (or family) name. Most fund families allow you to switch from one fund to another without cost so that you can adjust your asset mix as your needs –– and economic circumstances –– change.
7. Look at the real return (the stated return less any commissions and fees [MER]) generated by the fund before you make a decision. There are plenty of funds out there. Some charge a commission and others don’t. Some have high MERs and others don’t. While you won’t pick a mutual fund simply because it is no-load or has a low MER, you should consider those costs relative to the return you’re earning. Take the time to calculate the real return so you’ll know what you’re actually getting in your hot little hands.
Next week: Bonds
Last week: Segregated Mutual Funds
The 2nd Annual Picnic in the Park
Date: Sunday, July 11, 2010 from 10 – 3
Where: High Park, Toronto – Area #3 and shelter – here is a map (Note the different location in the park.)
Rules:
- Zero tolerance alcohol policy
- All waste/recyclables must be placed in appropriate containers – if not available, must remove any waste at own cost
- No amplified music or microphones
- Park in designate parking areas only, no parking on grassy areas
- Sale of food/items not permitted
- Tables, BBQs and parking cannot be guaranteed
- No balloons, decorations or signage permitted
- Gas/propane BBQs only, no charcoal BBQs
- No inflatable games, dunk tanks, generators, tents or tarps
- No outside caterers
Food: Last time people brought an assortment of foods (apps, mains, desserts) and drinks and it worked out very well. Bring your own dishes and cutlery to minimize waste as we also did last time.
June 22, 2010 at 6:46 am
Well for the Picnic 2 Coming
As for the mutual funds, number 2 is very important, looking at past rates of return for various years the funds that return at the greediest of levels often have a ton of volatility to them, often having years of extremely bad rates of return. I can stomach a fund going flat on the rate of return, but I hate seeing my money disappear.
regards,
Jason
June 22, 2010 at 7:27 am
Once again, I wish I was in the big T to be able to attend.
I do hope you have lovely weather!
June 22, 2010 at 7:32 am
Really wish we could make the picnic this year, but we just bought a new house and a trip from Ottawa is not in the budget
I haven’t even mentioned it to my girls since they played for a couple hours at the castle park after last year and Hannah has asked when we were going back 
Thank you Gail for teaching us this…a few years ago we went wherever we wanted to regardless of the price.
See you next year!
June 22, 2010 at 7:43 am
Picnic: 2 adults, 1 child coming.
We had a great time last year, and expect it will be just as much fun this year. We’ll drive from London to get our hug again!
June 22, 2010 at 7:43 am
Wish I could make the picnic this year – missed it last year too, but already have plans that weekend. Have fun – and hope the weather is awesome.
I’m going to be re-reading all the Mutual Fund info and hope to absorb more of it. I will be going through my statements and making sure they all fit my plan – not just my financial planner’s plan! Thanks for all you do!
June 22, 2010 at 9:02 am
Hi Gail,
We’ll see you again at the picnic this year. 2 adults, 2 ‘lil girls coming. Looking forward to it. Our GC group is also having our monthly meeting this weekend so I will mention it as well.
See you then.
H-U-G
June 22, 2010 at 9:58 am
Picnic: 1 Maybe
My in-laws still have to determine when they are hosting the twins bday celebration. Hopefully they won’t conflict!
June 22, 2010 at 11:49 am
when i first saw this blog was about mutual funds i thought to myself, oh oh. not my territory. however, as gail so succintly stated last week (i think) there’s this little secret called control. and knowledge + inquisitive mind = control. for me anyway.
so i read, and re-read the blog & thought, this makes some sense! even to me…and as already mentioned above by others, i went through my financial investment statements to see if i’m in line with me, NOT with my planner’s idea of where i want to be. very enlightening.
i will be back to this blog again and again as i strive to learn more about mutual funds & investments. i do have the advantage of truly liking my planner; he is not only a good listener, but also takes plenty of time with me to make certain i understand my options. and together we make decisions, instead of him telling me do just do this or that.
gail, i so wish i were near or in toronto! perhaps another year, when i have the budgeted expenses for a vacation, i can include the gail picnic. wishing you & all attendees a lovely day! and, as always, thank you for being the shining light on my path to debt-free.
June 22, 2010 at 11:55 am
I’m coming to the picnic, assuming I can get there via public transit. Anyone have directions (other than the map in the link?)
June 22, 2010 at 1:06 pm
Rhiannon,
As long as you can reach any subway station it’s easy. Just take the Bloor subway and get off at the High Park station, leaving by the main exit.
You can see the park entrance when you get out to the street and look south.
You can also reach the park, via street car, at the south end and then walk north through the park, but it’s a longer walk.
June 22, 2010 at 2:18 pm
Is there anywhere to park? I don’t see any lots marked on the map. On West Road near area #3 the road looks wider in places – are these parkng spots along the side? If not, perhaps I can park on a side street near one of the entrances. Ordinarily I would use public transit rather than driving around in an unfamiliar city, but if we do this we’ll be checking out of the hotel that morning, going to the picnic, and hitting the highway for home directly after.
Can’t confirm numbers yet – still pricing hotel for the night before and it must be within budget!
June 22, 2010 at 2:49 pm
Linda,
Thank you. Using your advice and the map, I should be able to find it.
(If you’re coming) See you there!
June 22, 2010 at 2:49 pm
2 coming for the picnic
Can’t wait-it was such a good time last year.
There is parking-we parked last year pretty close to the picnic site.
Thanks for the info re: mutual funds. I’m red-faced to admit that our RRSPs are in mutual fuinds that I really don’t understand. I just believed the finanical planner when he said that was the way to go, a few years back when I was just getting my financial feet under me (was just proud of myself for getting retirement savings started, wasn’t thinking about how to do it best). Now I’ve been reading your columns on the topic with interest and plan to ensure that we’re in the best possible investment. Knowledge is power!
June 22, 2010 at 5:16 pm
Re: Picnic – 2 adults, 2 little kids
We are looking forward to meeting everyone from the site in person!!!
June 22, 2010 at 5:35 pm
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June 23, 2010 at 12:16 am
“Picnic 1 Coming!”
Although I was late, last year was quite a BLAST! I met such a great array of like-minded individuals, shared some great knowledge, laughs and food, and overall had an excellent time.
I can’t to see all of your smiling faces there!
June 23, 2010 at 8:10 am
Picnic – 9 coming (yes NINE)…3 adults and 6 kids…hope to meet some great like-minded people
June 23, 2010 at 9:04 am
Picnic: 2 – 3 potentially coming
Adrian, I remember running into you at the High Park subway station, then finding you again at the park in our search for the moved picnic!
June 23, 2010 at 10:45 am
Hi Gail,
2 adults coming to the picnic.
Thank you.
June 23, 2010 at 7:24 pm
2 coming to the picnic
Looking forward to it!
June 23, 2010 at 9:43 pm
2 coming!
I can’t wait!
June 23, 2010 at 10:24 pm
Picnic: 2 coming for sure, I will mention it to my Gail group and hopefully more of us can come! I will bring my spinach dip like last year, everyone seemed to like it
June 23, 2010 at 11:02 pm
Gail! Are you going to visiting Vancouver BC anytime soon! Seems all the events are out East
June 23, 2010 at 11:46 pm
Picnic: 2 adults, 2 children. We had a wonderful time last year and we’re looking forward to good food, good people, and good times.
June 24, 2010 at 9:36 am
Great advice – thought people might also like to check out a new calculator that let’s you see the impact of fees on you mutual fund investments. Check it out at: http://www.getsmarteraboutmoney.ca/tools-and-calculators/mutual-funds/default.aspx
June 24, 2010 at 11:48 am
Picnic – 2 coming (1 adult, 1 child)
June 29, 2010 at 6:03 am
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