Using Morningstar Ratings With Mutual Funds The mutual funds that perform the best might not have received the best score from Morningstar; those that receive the highest ratings could still sink out in the financial market.
The way a mutual fund has performed in the past and the way it will in the future are two totally separate things.
Morningstar's rating are based solely on the past.
Don Phillips, fund research president of Morningstar, the system's ratings in no way is meant to be indicative of a mutual fund's future.
Active Vs.
Inactive Funds One misconception about mutual funds is that the most successful of them will be those that are managed the most actively.
Ironically enough, the truth is actually the exact opposite.
Those funds that are managed actively actually turn out to do worse than those that are largely left alone.
On top of this, managing a mutual fund will typically only increase what it costs to invest in these funds.
Off all the funds that are managed actively, a good 66% won't meet the benchmark set, let alone exceed that number.
Failed Funds That Are Never Reported When reports are given about the returns of mutual funds, the firms giving this information can distort the truth.
When funds don't perform well, a large portion of them are liquidated, or made a part of other funds.
Basically, the fund that existed in the beginning is done.
Of all the funds that are actively managed, this will happen to about a third of them, although it is less common with funds that are smaller.
A fund family may have great reports about funds that were successful, but skip entirely over those that performed poorly.
The Best Kind Of Mutual Fund Ideally, the mutual fund that you want will have a low expense ration and a turnover rate that is just as low.
The higher an expense ratio, the more an investor will have to pay for it, the money of which is then taken out of the investment's return.
The higher the turnover rate, the higher the fees, because the investment expenses for buying and selling will be higher.
These charges in turn spread to the other investors involved with the fund, meaning a lower return on the entire investment.
The best way to go is to search for an investment with the lowest turnover rate and expense ratio possible.
This will leave you with more capital and a greater investment balance in the future.
Load Vs.
No-Load Funds There are some experts who have said that load funds are actually the best kind of fund to invest in.
However, most finance specialists will tell you that load fees are not something to seek out.
Load funds come with fees as a way to pay for the financial counsel you will receive from your broker.
Some less than honorable brokers will work to increase these fees as a way to make more on their investments.
Certain loads funds will pay a broker for each investor that is involved in the fund.
If you actually need the help of a professional for your investment, you might be better off with a financial planner.
Otherwise, paying for a load fund could just be a waste.