Investing in Mutual Funds - what kind is best for me?

Question

So I have around 8 to 10 thousand dollars that I would like to invest in mutual funds. This is loaned money that is interest free for four years, so the investment period I am looking for is four years. I don't really care about making income during the investment period, I just want the value of the investment to be high at the end of the investment, so when I pay back the principal investment, I will have a decent amount of money I made off of it. With this particular goal, what are some good types of mutual funds (or other types of funds) to look at? Thanks.

Answer 1

In my opinion it is not really such a great idea investing borrowed money.  There is the risk that you may not have as much in 4 years as you started with.  That would not be so great when pay back came around.   If I had to recommend one that hopefully will net a positive return at the end of 4 years, it would be one of these 2---PENNX and PRWCX.  They are not so risky as many mutual funds so the probability of having a loss at the end of 4 years is not too great but it does exist.  Can you afford a loss?  

PRWCX has not had a loosing year in the last 10 or 15 not even during the tech bubble pop of 2000 to 20002.

3 year annual return is about 8.8%

PENNX has had 1 down years in the last 15.  2002 it lost 9.7%.  Its 3 year annual return is about 10%.  

A sure bet TIP but the taxes will eat you alive on that one and the return will be not too great only about 4 to 6 % before taxes.  

If you have the guts and do not mind the chance of loosing some money,  you might think about PXE an index fund holding oil and gas stocks.  Personally, I do not see how such a fund could go wrong, but mentioning wrong I have been there and done that.

Answer 2

Well 4 years is not a super long period of time. If you need to de-invest in 4 years, you need to be careful because 4 years from now could be another bear market where you might be forced to sell at a bad time. Since you're only looking at 4 years of returns, you need to choose investments that will not be too volatile to avoid that risk. That means less risky. I would invest some in financials because in 4 years they will recover substantially from the current mortgage crisis. Energy and infrastructure sectors are good long term growth plays, but you will need to balance these funds with a good amount (50%?) of lower risk funds. They won't earn you as much return, but you need to preserve your capital above all else. If you said 20 years, I would say all growth funds, but 4 year time frame can still be choppy. So you'll need to mitigate the risk of a bad market in the future.