| About this time every year, the personal finance | | | | selecting a mutual fund is the expense ratio. |
| magazines will perform an annual ritual: Looking at | | | | Fortunately, the Internet and Money's hyperlinks |
| how mutual funds have performed over the past | | | | let you rather easily get to mutual fund |
| year-and then using that information to suggest | | | | prospectuses, and these materials provide |
| which mutual funds you should pick for the | | | | expense ratio information. This is where you want |
| coming year. Sadly, this work is a complete | | | | to start-and probably finish-your mutual fund |
| waste of time. | | | | investing. You almost can't win if you choose a |
| It's the class, stupid | | | | mutual fund with a very high expense ratio. You |
| Choosing a mutual fund, all the research data | | | | almost can't lose if you choose a mutual fund with |
| show, is actually very straightforward and simple. | | | | a very low expense ratio. |
| Most of your performance depends on the asset | | | | Why not try to beat the market? |
| class you select. In other words, the biggest, | | | | Let me also briefly address the issue of finding a |
| most important, and most significant decision you | | | | mutual fund manager who generates above |
| make is whether you want to put money into | | | | average returns. Clearly, some mutual fund |
| stocks, bonds, money market accounts, real | | | | managers, over time, have produced |
| estate, or some other class, such as international | | | | extraordinary returns-returns so high that they |
| stocks. | | | | more than offset even large expense ratios. The |
| Cost is the second factor to consider | | | | point you need to realize, however, is that if you |
| Within a given class of investments, such as | | | | do choose to look for a star mutual fund |
| stocks, the research shows that the most | | | | performer, what you need to do right now is |
| significant characteristic that determines the | | | | identify somebody who is going to be a star over |
| goodness of the investment is the expense ratio | | | | the next two or three decades, not someone |
| charged by the mutual fund management | | | | who has been a star over the past two or three |
| company. For example, if one mutual fund | | | | decades. Long-term investing means you are |
| company charges you 2 percent of your fund | | | | looking out several decades into the future-even if |
| balance to manage your investments and another | | | | you are retired. |
| company charges you .2 of a percent, almost | | | | Note, too, that who performed well last year is |
| invariably, the mutual fund charging the lower | | | | no indication of who is going to perform this year. |
| expense ratio will do better over long periods of | | | | Repeatedly, studies have shown that last year's |
| time. | | | | or last quarter's hot performer is not this year's |
| Asset allocation for lazy people | | | | or this quarter's hot performer. |
| When you understand the importance of asset | | | | Putting my money where my mouth is |
| allocation and investment costs, picking a mutual | | | | Here's my personal investment strategy. I am a |
| fund boils down to two simple issues. The first | | | | firm believer in index funds. Through the late |
| issue is how you want to apportion your money | | | | 1990s, I invested almost my entire portfolio |
| between stocks, bonds, and other investments. | | | | (perhaps 95 percent or more) in the widest |
| Typically, you want to have the majority of your | | | | available stock index fund available to me. In the |
| long-term investment money in stocks, some | | | | late 1990s, after the stock market became |
| portion in bonds to reduce the volatility of your | | | | obviously over-valued (I said this in print in books |
| investment portfolio, and some portion of your | | | | like the Millionaire Kit (Random House, 1999), I |
| money-perhaps your rainy day fund-in something | | | | began using balanced index funds (which index |
| like a money market account. | | | | both stocks and bonds). |
| The second issue you need to focus on in | | | | |