Quote:
Originally posted by Hetmann
Actually an actively managed fund should beat the S&P most years. Thats why you pay a management fee.
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You'd think so, wouldn't you? The bottom line is that most actively managed funds fail to beat their respective averages every year.
Tabasco, a good place to start is
www.aaii.com. That is the American Association of Individual Investors. You can join for a fee, but there is a lot of great information on that site for free. My favorite is their mutual fund guide which they put out every year. They group funds by class (domestic, international, large cap, mid cap, small cap, sector, etc) and then break down their performance on 1, 3, 5 and 10 year averages compared to their class. The nice thing is that they require the funds to have low management fees to even get into the guide so you know you won't get stuck with a high fee fund. The fees are also listed on the sheet for the fund. What I usually do is go through the guide for the class of fund I am looking for, pick a few that have done well in their class on a long term basis and then go to the individual websites for the funds to really look at the prospectus.
As far as what funds to buy, it is generally a good idea to have a broad diversification in your portfolio, it will even out the ups and downs. If you have a broad index fund (I use the Vanguard Life Strategy Index fund) then that helps to improve your diversification. After that look at actively managed funds. Most of the index funds are large cap heavy because the indexes are usually large cap heavy (assuming you aren't talking about a small cap index). So I chose a mid cap growth fund, a small cap growth fund and a micro cap growth fund. I then chose a mid cap value fund because I didn't want my portfolio to be ALL growth. That completed my domestic portfolio. I put a small amount (5% of my portfolio) into a Pacific Rim fund because I wanted exposure in the far east. I then chose a tech fund (which I am selling because it only made 3% in the last year) because I thought the tech sector had been beaten up and was due for a rebound (I was wrong).
That's how I set my portfolio up. In general try to stay under 8 mutual funds total. If you get more than that it gets tough to keep up with all of them and you just end up with a jumble of alphabet soup. Try to not duplicate fund classes, there really is no reason to have two mid cap growth funds, pick one that is the best in your mind and go with it.
Set up what percentages you want in each sector at the start. Every year you should rebalance your portfolio and restore those percentages. Yes this means you will sell some of your winners and buy some of your losers (or smaller winners anyhow). That's the point. The losers will become winners (or if they never become winners you choose another fund). I generally give my funds 2-3 years before I sell one to get a chance for them to perform.
Hope this helps.