Mutual funds are a popular investment and you want to buy these which reach the highest return. This is not always a good idea; mutual funds are long term investments and there is no mutual fund which reaches year after year the highest return. Mutual funds with the highest returns will also reach in some years great losses. Every bank tries to offer the best mutual funds for every type of investor but there are many differences in risk profile and investment strategy.
You can read returns in newspapers, Internet sites and it is maybe useful to use the Morningstar rating for an analysis of different mutual funds. Morningstar publishes ratings which have proven to be valuable if you want to compare different mutual funds. It has no sense to select “all” and compare the returns of all mutual funds which they have analyzed. Mutual funds have different risk profiles and you will likely find higher returns or greater losses with mutual funds which have a high risk profile.
The Morningstar rates are useful if you compare mutual funds with the same investment strategy or in the same sector. You can find returns within a short term, for example three months but it is also possible to compare rates in a time span of ten years. Mutual funds are long term investments and it is wise to compare returns of 3, 5 and 10 years. You have to know the returns are results of the past and it is no security for success in the future.
The Morningstar rating is based on a mathematic formula and you need to be careful with these rates. These rates are not always a useful tool if you want to buy mutual funds. There is more research necessary. It is perfect possible mutual funds have a 5 star rating but the perspective for the future can be bad. It is possible the fund manager is changed or the strategy of the fund is changed. This can influence the performance of the fund but you can’t find these details in the Morningstar rating.
A guide for the best mutual funds shows how you have to select the best mutual funds for you. The investor needs to determinate his/her risk profile and selects mutual funds within this investment strategy. The easiest way is a strategy fund where the fund manager invests according the risk profile of the investor, for example a balanced strategy mutual fund is a fund where 50% is invested in bonds and 50% in shares.
Every bank offers these kinds of mutual funds and you can best compare the returns of different banks. You will notice differences and the Morningstar rates can help you to compare these funds. Check certainly the references of the fund manager and the fees you have to pay. It is also important to know the fees you have to pay if you switch to another strategy fund of the same fund manager.
An index fund can also be a good idea because these funds have the same results as the market indexes, for example Dow Jones, NASDAQ, country related stock indexes etc. These indexes represent a diversification of the best stocks of a certain country, sector or any other market. You will limit the risk and reach the same results as the best market indexes.
Picking the best mutual funds is individual and according the goals you want to reach. Time horizon is an important factor and it is important you don’t take many risk than you can afford. If you are afraid to lose money, it is better to avoid mutual which invest in stocks and maybe a money market fund can be a wise idea. Returns are not high but you will likely earn more money than in a savings account. If you can afford to take more risk and you don’t need your money for ten years you can consider to buy mutual funds which invest for a certain part in stocks.
Nobody can predict the future and you don’t know when it is the best time for buying your mutual funds. Systematic buying will help to limit the risk and you avoid buying always on a peak price.
The key for picking the best mutual fund is investing according your risk profile and you may never forget to check the fund manager, the strategy of the fund and the fees you have to pay. You need patience and the Morning Star rates will help you to make the right decision. There is no mutual fund which can guarantee you success year after year. You can only try to find these which meet your goals.