T Nation

Mutual Funds


im looking to buy mutual funds but have no idea where i need to start anyone out there have any suggestions?


Vanguard. Don't get suckered in to paying huge fees for mutual funds when you can get something basically the same for much cheaper.


Do you have a 401 K at work?


I reccomend the book "The Random Walk Guide to Investing" by Burton G. Malkiel. It is very informative and helps individuals strategize long-term investment based on personal goals and disposition. He pretty much tells it like it is. It is not a get rich quick book if that is what you are after. Its a quick read and easy to follow.


They all have fees of some sort (whether front-loads, back-loads, maint. fees,etc) you just have to try and minimize your fees with respect to your returns. Some of the higher returns actually come from funds that you pay a relatively higher fee. After tax, total return is your goal, not just low fees.

Find ways to narrow your search like sectors or domestic v. international. For example, you may want to go with pharmaceuticals (oxycontin et al). Once you've narrowed your list, research them to find the one that best suits your goals.

I do it through my 401k, which limits my choices, and put the rest of my $ in individual stocks and real estate.



many funds publish the cost ratio. the higher the ratio the more it costs to manage the fund--thus less money being returned to you. Really, time and cost are your two biggest factors in determinig returns. Time you can't control so pick low cost ratio funds and don't pay attention year over year returns. It is completely random and only should be used as an idicator of past performance. If doing it through 401k, cost won't be a controllable factor either unles they give you a choice on which investment firms you can pick.


If you've got a 401k at work (chances are it's with Fidelity which I work for) you definately want to contribute at least as much as your company matches. 5 % is great but 3% is still good.

After that, you'd be better off maxing out a ROTH IRA .

As for what to invest in.....ask 10 people and you'll get 10 different answers. In my opinion, if you are young (in your 30's) you've got plenty of time to be very aggressive with your portfolio. My entire 401k is in one aggressive mutual fund. It was up 35% last year alone. I personally think that diversication is overrated and can really hurt the returns of younger investors.

Or, you could stick all your money in the Vangaurd S+P 500 Index fund and never look at it again. You'd probably average 7 to 12 percent a year over a long enough timeframe.



go to this website if someone haven't already posted it www.fool.com


I second that. Motley Fool is a great resource.


A book I highly recommend...

All About Asset Allocation


Find a performance based broker like Merrill Lynch. They only make commission if they make money for you.


The best piece of advice I ever received is to not listen to the glorified salesmen that call themselves
investors/brokers--especially when they quote the returns they recieved in one year. Sounds like a sales pitch when you start quoting random numbers.

The important thing to remember is that the market is a gamble. Just like in all betting type games you have people who bet for the loss and those that bet for the gain. Do not listen to those that tell you they can beat the market. It is completely random and either way its a 50-50 gamble. You either beat it or don't. They cannot consistantly pick winners becasue the parameters are too many and they change at a moments notice. Your best bet is still Diversification.


I had friends who worked for Fidelity at the WTC in Boston, where do you work? What are your opinions on REITs?


Also work in this (general) area... my thoughts...

A few general things before you get down allocation:

In a market downturn, don't pull your money out to "wait for things to get better." It'll work against you. If you have real problems doing this, stop opening your monthly statements. Seriously.

Try to set up a minimum amount to contribute monthly and stick to it. Like others said, if your employer has a matching program, do as much as you can to take advantage of that.

If you have any longstanding credit card debt or other high interest debt, pay that off before you start investing anything.

Vanguard is a superb choice - at your age you could just buy into their product that mirrors the S&P 500 index and keep adding your monthly contributions to it and that'd be a pretty good route. Well down the road, you might want to start putting your contributions into bonds etc, but that's years away. Of course if you start feeling very flush you can start getting into "aggressive" funds. You'll find, however, that without dedicating a significant amount of time, these are hard to pick well, and there's not a lot of evidence you're going to be missing out on much or ANY extra performance by being in the overall market instead.

If you want to spend a lot of your freetime in the future studying funds, individual stocks, etc, that's AWESOME and might lead to higher returns. I'd tell anyone to spend serious time (over a year) studying up before trying to pick stocks or funds focused on any particular sector, and even then keep the amounts small to start.

It's an awesome move to get on top of this, by the way. Feel free to toss up any other issues that arise.


ETFs have much lower expense ratios on the average than mutual funds, even Vanguard. Check them out. The advantage of no load fee mutual funds, however, is that you can keep buying more when you get more money (elementary dollar-cost averaging) and you do not have to pay a fee for every purchase. If you just want to hold and sell, then ETFs are the way to go.

Also, since I am a proponent of the efficient market theory, I believe that you should buy an index etf or fund of either the S&P 500, total market, international, or small-cap depending on the length you are going to hold on to the fund due to the added risk involved (more risker requires longer time periods to offset that risk, hopefully with a higher reward).


Hey guys (and girls),

My Co offers a 401k, but no matching contributions. Should I be maxing out a Roth IRA first and then putting the rest into my 401k, or just investing it elsewhere?

I'm pretty sure I know what Bob Brinker and Dave Ramsey would say, but would like another opinion.

much thanks!


It depends on how much you plan to invest. You can put up to $4000 into a traditional IRA before tax, while the 401k max is much higher. The IRA, however, gives you more control than most 401k's do. Don't get suckered into the Roth IRA myth--it's not necessarily better than a traditional IRA, and could wind up costing you a lot of money in the long run. It depends on your investment strategy, your age, and the tax bracket you expect to be in when you retire. I would do some research and make sure you fully understand the differences before you make a final decision.



Remember this number. Thats the averageinvestor performance` ?

Before investing, spend alot of time trying to figure your risk tolerance. The market is another (sometimes very costly) way to find it.

As someone said in the Buying the whole index market, determine if you will be needing this money within 5 years. Don`t expose yourself too much to market cycles if you are not sure your investment horizon is below 5 years.

Why do I stress risk tolerance and the 5 year (market cycle) thing? Simple. MERs and management fees are not the real problem. Lets say you save 1% on MERs by doing-it-yourself. Thats still not enough to explain why the average investor does not get market average results. That`s a 7% average difference. OUCH!

Not knowing your risk tolerance and following impulses (like buying high and selling low -- dont laugh, thats what the average investor does -- especially in times like now) will keep you in the 2.3% zone.

Know thyself.

And never forget reversion to the mean.

I dont know if you are interested in funds because of the 3-year-in-a-rown growth streak. Thats just the rebound of the 2000+ drop. Long story short, keep in mind average market returns. Sooner or later, your top fund goes down the drain. Diversification is a good part of the solution.

In case you are afraid of missing out, yes, think about that 2.3% thing the next time you hear a co-worker or brother in law boast about his most recent returns. Most probably, he`s not telling you the whole story. Put another way, the average Joe probably will have the same return using money market fund as the average market (timer) investor.

Food for thought.


Vanguard or T. Rowe Price is the way to go if you want to get into funds. Read Morningstar.com or fool.com and they will give you some great ideas.

Personaly I think large cap value is the best place to invest now. That being said I would still spread my money across small, mid and large cap and even some international funds.


I'll add another vote for the Vanguard S&P 500 index fund.