One of the biggest questions many people ask is why their mutual funds aren’t performing as well as they should be. Mutual fund performance is a bit of a tricky subject, since part of mutual performance is based on what the markets are doing. If you have an equity mutual fund, it’s not going to do well when the stock market is down. When financial markets are down, your mutual fund performance will be down as well. On the flip side, when markets are on fire, your mutual fund performs well. Even so, many are disappointed that their returns are not keeping up with the market.
One of the main reasons that mutual fund returns don’t match market returns is due to fees. All funds come with fees, and these fees are going to cut into your returns. The key is looking for funds with lower fees, so that you keep more of the money the fund earns. Here are 3 ways you might be able to boost your mutual fund performance:
1. Ditch the Managed Funds
Fund managers like to say that you have the benefit of “experts” when you invest in managed mutual funds. However, study after study after study has come out suggesting that managed mutual funds do not perform any better than funds populated with your own picks. Indeed, by the time you pay all the fees associated with managed funds, you might be doing worse. And, because managed funds often have higher turnover than funds that are not professionally managed, you might have more transaction fees to contend with on top of administrative and other fees.
2. Look for No-Load Funds
Even if you decide to go with managed funds, you can increase your mutual fund performance by going with no-load funds. When you pay a 12b-1 service fee to cover the marketing expenses of the fund, or if you pay a sales load, your returns can end up being lower. No-load funds can be one way to reduce your fund expenses and boost your mutual fund performance. Be careful, though: Some funds make up for being “no-load” by charging in other areas.
3. Consider Index Funds
Index funds are actually mutual funds. These funds invest in companies on a specific index. You can get a piece of everything on an index for a relatively low price. While you will never get exactly the same return as the index, since there are fees associated with index funds, you can end up with returns close to market performance since the fees are often amount to between 0.5% and 0.75%. Compare that with the 2% or more charged by actively managed mutual funds. Index funds do not require a great deal of management, and are cheaper.
Plus, if you are investing for the long-term, you can take advantage of market performance over time. Over long periods of time, the stock market has yet to lose. In some cases, you might be able boost your mutual fund performance simply by investing in an all-market fund consistently over a period of 10 to 25 years.
Try Morningstar for a Performance Boost
Many investors are clueless on what mutual funds they really have. What that also means is that they have no idea how the mutual funds has performed, how high the expense ratio is, or how it’s compared to others like it. A quick and easy solution to get a true snapshot of what your mutual fund portfolio looks like is to use a tool like Morningstar. Morningstar is like the Consumer Reports of the mutual fund industry, just providing the clear cut facts on how the fund is really doing.
Right now Morningstar has a free 14 day trial. Now you have no excuses to take a look at your portfolio and make sure you’re not holding any horrible funds. Trust me, there are thousands out there.
Bottom line: There is no way to guarantee returns on any mutual fund (or any investment, for that matter). But you can boost your mutual fund performance and returns if you are do your homework and look for ways to limit your expenses while tracking market performance.