Home
>
Stocks & Mutual Fund
>
Picking Mutual Funds to Outperform the Market

Picking Mutual Funds to Outperform the Market

With over 6,000 mutual funds available, it may be tempting to pick funds from a popular star or index rating system. Savvy investors, however, balance multiple factors in their selection process. Ratings represent only the historical performance of funds and cannot predict the future. Performance consistency, management skill, and expense limitations are among the many factors that influence a fund's prospects. Each must be carefully evaluated to improve your chances of finding a fund to outperform the market.

Create a plan
Define your financial goals. Are you saving for retirement? Putting money aside for a home? Funding a child's college education? Your answer will have significant implications on your choice of mutual funds. More time gives you flexibility to use an aggressive approach. Immediate needs call for safety and capital preservation. Take careful consideration of your tolerance for risk. If the market dips, at what point would you lose sleep? Is it a 5% drop? 10% drop? An asset allocation plan will balance your portfolio and maximize return for your level of acceptable risk.

Dismiss recent results
Past performance is no indicator of future results. No truer words could ever be spoken and they are included in every mutual fund advertisement. But it's extremely difficult to ignore these numbers which the fund companies conveniently place in big bold letters ? immediately above the fine print warning us. Nothing is more attractive than a fund with a great record, especially given the dismal performance in the market.

Past performance can provide a good starting point, but nothing more. In fact, past performance predicts losers better than the winners. A 1998 study from fund-tracking firm Morningstar, demonstrated the top fund performers rarely hold their spot on the charts. The study also concludes bottom performers rarely did anything but continue to sink. Never assume the past will repeat itself, yet, ignore a fund's historical record at your own peril. Avoid the perennial losers.

Seek consistency
Evaluate a mutual fund's performance beyond just the recent year. Any fund can get lucky, but it's the rare firm that prove themselves year after year. Examining a fund's long term performance can answer the question of consistency. If the performance was good, was it repeatable due to skill ? or merely a spike due to dumb luck?

Watch for a solid record of returns, rather than funds showing spurts of great years followed by fits of lousy ones. Compare the fund's returns to a relevant benchmark index, (large-cap vs. S&P 500, small-cap to the Russell Index, etc.) Solid funds should not only consistently beat the benchmarks, they should also beat their peers.

Seek good managers
Always review the experience and performance of the fund's managers. When you buy a mutual fund, you are actually investing in the experience, skill, and savvy that the manager brings to the table. When the manager leaves, the fund performance generally goes with him. How many years has the manager been leading the fund? The longer (if generating strong results), the better. And keep an eye out for the gurus. The industry's better managers are well-respected, high-regarded, and often quoted in the press. You'll find multiple articles and even manager profiles published in the popular financial magazines and newspapers.

Think cheap
Check out the fund's cost of ownership. While you can not predict a fund's performance, you can control the ongoing expenses. Since expenses impact your ability to grow investments over time, select a fund with low costs. Check the expense ratio, sales fees, trading costs, and 12b-1 fees charged to cover the marketing, distribution and sales. Everything counts against your bottom line ? keep it small as possible. When possible, choose funds with expenses less than their category average.

Taxes are often overlooked and can substantially reduce your after-tax gain unless investing within a tax-deferred, retirement account. Avoid funds with large distributions (capital gain payments) by searching for funds with low turnover. Since buying and selling stock incurs transaction costs, lower turnover translates to lower expenses and lower capital gains' taxes. Fund managers who seek to boost returns through repeatedly buying and selling securities are no friend of yours.

Putting it all together
Picking mutual funds is a challenging task. You will need to spend time learning, researching, investigating, analyzing, and comparing. The key is to develop your own methodology using some of the components listed here along with your own judgment and decision capabilities. Review your investment plan and fund selection criteria at least once a year. Make sure the plan still matches your goals and the funds match your expectations.

It's your money. It's your future. Take your time. Get it right.

Tim Olson

theassetadvisor.com

Mr. Olson is the editor of The Asset Advisor, a financial investment service providing proven strategies for no-load mutual fund investors. He brings 26 years of education and experience from Stanford University, Ernst & Young financial consulting, personal wealth management, and venture capital investing.

theassetadvisor.com

green cleaning service Deerfield ...

In The News:

MacSync malware hides malicious commands inside iCloud calendar events to download additional payloads onto infected Macs without raising suspicion.

Joseph Holycross dismissed his racing heart for nearly two years until his Samsung Galaxy Watch detected atrial fibrillation and changed everything.

Home title fraud begins when criminals forge your signature on a deed. Here is how to check your own property records and set up free alerts.

Jeffrey Ladish, a former Anthropic security team member, warns AI agents are colluding and hacking with no reliable solution to keep them in check.

Instinct Concierge and Meta Muse can now place phone calls to businesses on your behalf, but the privacy and data access tradeoffs are significant.

Olivia Moore spent $100 to create a fake RushTok influencer using ChatGPT and MiniMax, and thousands of Bama Rush fans couldn't tell the difference.

RatHat Android malware uses AI to steal banking credentials, intercept two-factor authentication codes and reconstruct your PIN from touch inputs.

The Fox News AI Newsletter covers the latest artificial intelligence technology advancements, including the challenges and opportunities AI presents now and for the future.

Apple and Google password managers can flag compromised, weak and reused passwords on your phone before credential stuffing attacks can strike.

Researcher Peter Garrigan says Moonshot AI's Kimi model was manipulated into providing instructions for biological weapons and assassination plans.

iPhone, Google Pixel and Samsung Galaxy phones now offer call screening that asks unknown callers to identify themselves before your phone rings.

Ransomware can lock your irreplaceable photos and documents in seconds. A tested backup strategy and stronger cybersecurity habits are your best defense.

ShinyHunters claims it breached FBIJobs.gov and stole Social Security numbers, home addresses and sensitive assignment details of FBI personnel.

Find My iPhone, Google Find Hub and Samsung Find have critical tracking settings to enable now, before your phone ever goes missing or stolen.

The FTC proposed a new enforcement policy on personalized pricing, warning companies that hide how personal data shapes the prices shoppers see.

The $250 million Apple Siri AI settlement is now accepting claims, with eligible iPhone owners potentially receiving up to $95 per device.

ShareAScan turns T-shirts into scannable digital business cards with QR codes that link to profiles the owner can update anytime they choose.

BragJack research reveals how a single malicious browser extension could hijack Gemini, Perplexity Comet and Edge AI agents with zero clicks.

A phishing campaign impersonating OpenAI uses fake ChatGPT billing emails with a convincing login page to steal credentials and payment details.

Startups are helping modernize America’s defense industry with new technology and innovative ideas as the War Department diversifies its inventory.

New account fraud victims jumped 31% in 2025, reaching 5.4 million. Criminals open accounts you may never see on your regular bank statements.

Flytrex says its AI-powered Rooftop Dock system in Dallas-Fort Worth positions drones at restaurants before orders arrive, cutting delivery costs by 60%.

Samson Sky's Switchblade flying car secures $80 million from Dubai's Matin Group, but the redesigned hybrid-electric aircraft still needs more testing.

The Fox News AI Newsletter covers the latest artificial intelligence technology advancements, including the challenges and opportunities AI presents now and for the future.

CenterPoint Energy confirmed customer data was stolen, while a hacker claims 7.49 million records with partial Social Security numbers were taken.

Picking Mutual Funds to Outperform the Market

Stocks & Mutual Fund