For several years, mutual funds have been the chosen investment of the average investor. Those who do not have the time to truly study the stock market (or other markets) have felt much safer having professionals handle their money and with the diversification that is inherent in mutual funds.
Of course, when we talk of mutual funds, we are still talking about a very wide array of investments. There are nearly countless mutual funds, each with different emphases and managers. So, speaking in generalities is necessary in this article, but it also hurts the overall message, since some funds will do well in terrible times while others will struggle in good times.
Over time, well-managed stock funds have done at least as well as the overall stock market. Most well-known financial advisers state that mutual funds are not only a major part of one’s investment plan, but a wise part of that plan, too. However, with concerns over our nation’s overall economy continuing to mount, many investors are concerned. Some are pulling money out of funds, while others are simply not adding any more money.
What should you do?
I can’t answer that question, but I can say that my family is continuing to add to our mutual funds monthly. The reason is that we will not need the money – hopefully – for many years, so we are not concerned about the short term losses that might come. We also believe that, over time, the best of the best in American companies will still be finding ways to grow their business and be profitable.
The question posed in the title of this article makes one assumption that is very important to this topic. The last word of the question, “Today,” is where many people get in trouble with most types of investing. If you are needing the money from mutual funds today (meaning, in the very near future), then they are rarely if ever a good investment – no matter what the economy might be doing. In fact, at that point, they are not really an investment at all because to invest assumes that you are looking further into the future.
Long-Term Mutual Fund Investing Tips
So, knowing that we are looking further than a few months down the road, here are some investing tips if you still wish to purchase mutual funds.
1. Buy funds with historical track records.
Funds that have weathered downturns in our economy before can be found. These are the funds you need to look for. They will still, most likely, lose money during a bad stretch, but they know how to overcome those losses and continue to press forward.
2. Stay consistent and don’t time the market.
Do not try to time the market, even in an investment as diversified as mutual funds. Instead, set aside the same amount every month and keep adding over time.
3. Diversify across fund types.
While you are diversified within the fund, also look at trying several different funds. Dave Ramsey suggests 25% of your portfolio in each of four types of funds: growth, growth and income, aggressive growth, and international. Even if this is not your choice of how to set aside your money, it is a good place to start.
4. Stop watching the daily stock report!
This may be the most important step. The stock market will have down days, weeks, and even months. If you can’t stomach those daily dips, you don’t need to be in the stock market at all. You are looking at historical trends, and not daily movements in the market.
5. Get good advice.
If you have a financial planner, that is good, but you may want to have more than one person helping you if you gain some level of wealth. These advisers can also help you keep your eye on the long-term goal and not on some short-term losses.
6. Think about getting more conservative with age.
Some financial planners suggest this, while others do not. If you struggle with the ups and downs of the market, however, you may consider moving out of more volatile types of investments as you age.
Facing a “fiscal cliff” or any other economic downturn can cause anyone to be a little timid with investments, but wisdom and a long-range view will help you stay the course.
What other suggestions would you have? Do you think mutual funds are a good investment?