Peter Lynch's Powerful Rules for Mutual Fund Investors
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Making money investing in mutual funds isn't at all complicated. Here are my simple rules:
- Forget about bond mutual funds and hybrid funds. If you're investing for 10 years or longer, stick with stock mutual funds. Stocks have outperformed every other investment over time.
- Pick mutual funds with consistent annual returns. Go with mutual funds that have performed well over each of the past five--or 10--years. Be sure that each fund's current manager is responsible for the record.
- Avoid mutual funds with high annual expenses. Over time, these expenses erode returns--and cause managers to take big risks to perform as well as peer funds with lower expenses.
- Small company mutual funds beat big-company funds. Small-cap funds have greater volatility, but over time they produce larger returns than large-cap mutual funds. Look for a good small-cap fund whose portfolio matches the Russell 2000 small-cap index.
- Don't play "musical funds." Once you've chosen a good fund, stick with it.
Excerpt from: Bottom Line Year Book 1997, based on Peter Lynch, one of the world's shrewdest stock-pickers.« Read Previous Article Read Next Article »