| > | | | | Conservative investors find a great deal of |
| | | | comfort in believing that their investments have |
| Even the Best Mutual Funds Are Not Appropriate | | | | limited downside potential. |
| for Every Investor. | | | | Growth investors, on the other hand, are not |
| People often ask the question, which are the best | | | | normally very risk averse and accept high |
| mutual funds? This is almost an impossible | | | | volatility if it is accompanied by high expected |
| question to answer without knowledge of | | | | returns. Ironically, statistics show that value |
| important information such as a person’s | | | | investments outperform growth investments |
| time horizon, risk tolerance, preferences, tax | | | | over long periods of time. Contrary to what some |
| situation and other financial circumstances. | | | | professors teach in business school, tasking more |
| The Best Mutual Funds Should Be Consistent with | | | | risk does not always result in higher returns. |
| Your Risk Tolerance | | | | Which Mutual Fund Size Works Best for You? |
| The most important factor to consider when | | | | An investor’s preference for mutual funds |
| providing personalized mutual fund | | | | that invest in either large or small companies |
| recommendations is a person’s risk | | | | depends largely on his or her risk and return |
| tolerance. High-risk/high return mutual funds may | | | | investment objectives. Small-cap investors are |
| be appropriate for an aggressive investor but | | | | generally looking for high returns and are willing to |
| may not be appropriate for everyone. For | | | | assume a substantial amount of risk while |
| example, an emerging markets fund may be the | | | | large-cap investors are generally more |
| best in its investment category but may not be | | | | conservative and are willing to accept a lower |
| appropriate for a conservative investor. Similarly, | | | | return with less volatility. It is important to note |
| an intermediate bond fund may be the best in its | | | | that there are plenty of large-cap mutual funds |
| category, but may not be appropriate for an | | | | that are more aggressive and volatile than |
| aggressive investor. Unfortunately, far too many | | | | small-cap mutual funds. |
| people cannot even accurately assess their own | | | | Selecting the Best Mutual Funds from the Best |
| risk tolerance. Many people have the tendency to | | | | Mutual Fund Companies |
| overestimate their willingness to assume risk, | | | | Once you have decided which types of mutual |
| especially during periods when stocks are | | | | funds work best for you, it is time to select the |
| performing well. A perfect example of this | | | | best mutual funds from the best mutual fund |
| overestimation occurred in the late 1990s when | | | | companies. There are many high quality mutual |
| technology stocks soared and investors increased | | | | fund companies that offer a wide variety of |
| allocations to this part of the market. The best | | | | mutual funds. Don’t limit yourself to |
| time to assess risk tolerance is when markets | | | | investing in only one mutual fund company. No |
| are falling and investors are more in touch with | | | | single mutual fund company is the best at all |
| the reality of losing money. | | | | investment strategies. Some mutual fund |
| Which Investment Style Is Best for You? | | | | companies excel at domestic equity investment |
| The best diversified equity mutual funds for one | | | | strategies while other mutual fund companies are |
| person may also not be appropriate for another | | | | excellent at managing fixed income portfolios. |
| person. Some people prefer value mutual funds | | | | Also, don’t let the paperwork impact your |
| while other people prefer growth mutual funds. | | | | decision to invest in the mutual funds of more |
| Value-oriented mutual funds tend be less volatile | | | | than one mutual fund company. Receiving a few |
| than growth-oriented mutual funds. People who | | | | extra statements is a small price to pay for |
| prefer value investments are normally more | | | | having access to a wide variety of top mutual |
| conservative than those who prefer growth | | | | fund managers. |
| investments. Benjamin Graham, considered by | | | | The Mutual Fund Wrap Up |
| many to be the father of value investing, created | | | | Investing in mutual funds is most rewarding when |
| the margin of safety concept, which | | | | you have a thorough understanding of your own |
| embodied the belief that stocks are more | | | | risk tolerance as well as the mutual fund options |
| attractive when their downside is limited. | | | | available to you. |