Another new investor question: W/ Mut. Funds, how should I look at the 3 mo returns & the YTD returns?

Question

For instance.... this one M. Fund has a 3 mo return of +8.3%, which I thought was great. But, the YTD return is -11.2%, which makes me want to run the other way. I'm actually using a mutual fund screener. A lot of the funds have great 3 mo returns with horrible YTD returns. How do I go about choosing a fund based on that data? Any advice will be greatly appreciated. Thanks in advance.

Answer 1

I personally favor index funds that are not actively managed. These funds simply track an index of stocks, are well diversified, tax efficient, and have low expenses.

I would make sure you don't invest in a fund that has very high expenses first. Also, I would not consider 3 month or even 1 yr track record. Past performance is not that great of an indicator of future performance in the mutual fund industry. Even if the manager is a great stock picker, the fund attracts more assets and managers frequently cannot achieve the same returns when investing larger amounts of money.

Also, morningstar.com has some good guides for mutual fund selection and a rating system that incorporates a variety of metrics. Their best funds are 5 star funds, so that might be a good resource to consult.