Instead of providing you with very broad generic answers about the “Guide to the Best Mutual Funds”, I will tell you how I personally have achieved above average results over time. This is not an article that will ‘flow’ or read well, rather it is a guide and set of instructions.
Use any type of mutual fund screener with the specific criteria below. I personally prefer Fidelity and use their mutual fund screener.
1. Go to Fidelity.com.
2. Click Research.
3. Click Mutual Funds.
4. Click Advanced Search.
5. Check all three criteria in the fund preferences section.
6. Check “No Preference” in investment category and fund family.
7. In the Returns section, keep “any” in the one year category, 15% in the three year, 10% in the 5 and 10 year categories. What you are looking for is consistency. Any mutual fund can have a big year. People unfortunately chase high returns or buy on a hot tip from a friend because that friend made some absurd return last year. The question is, what does it do over time? Think about the tortoise and the hare. You want to be the tortoise.
8. Check “No Preference” on the Morningstar rating.
9. Expense ratio of 1.5% or less.
10. “No load” in the fees and loads section.
11. Manager tenure has to be at least three years. You don’t want what appears to be a stellar fund with a manager that has just come on board and is riding the coattails of his predecessor.
12. Check no preference on “Net Assets” and “Equity Turnover Ratio”
13. Check no preference in “Risk/Volatility Measures” and “Bond Details”.
14. Click “Search Funds”.
As of the time of this writing, 5 mutual funds were returned using the criteria above. (If you changed the criteria to include non-Fidelity funds, you would get 42 as of the time of this writing.) The average stock market return over time is approximately 10% a year. Each one of these funds returned with this stock screener was between 10% and 15% for the past 10 years. A few percentage points may not seem like a lot, but over time it adds up. Sure you could get an index fund, but if you could potentially make a few percentage points higher, why not do it? Of course there are no guarantees with anything. If you choose to go this route, check with your financial planner first and be sure to diversify across several different investment categories. You don’t want to use this mutual fund screener then pick 3 mutual funds all with an investment category of “Large Growth”. You want it spread across several categories- Large Growth, Large Value, International, Mid-cap, Small cap, etc. Best of luck to you.
Disclaimer: I am not a financial planner, registered representative, or employed by Fidelity or any other securities company. I am an average guy who is simply sharing personal knowledge.