One day it is raining and on the next day, it is scorching hot. This exactly is the nature of mutual funds. In 1or 2 years, a mutual fund is on the top performer list, but the assurance that it will remain on top for another year is far from knowing. Thus, it is very hard, even impossible to determine which mutual fund will give you big profit.
If a mutual fund performs well today, it never follows that it will perform tomorrow or the next day. Just as magazines and advertisements say that a particular mutual fund performs well would not mean you have to consider it as absolute truth and prediction of the future, and then transfer all your money on these mutual funds. Because if it is true, then everybody is already a millionaire. But in spite of this obvious reality, many investors jump from on mutual fund to another hoping to ride on the waves of top performance mutual funds.
You now might ask: If mutual funds’ status changes from east to west unpredictably, is there any way to wisely pick the future best performing mutual funds?
The answer is: there is none.
However, there are ways to prevent your money from going astray. Here are some things you should know.
Best performing mutual funds today “might” not be the best performing mutual funds tomorrow. Same with the worst performing mutual funds today do not have any assurance that it will become the best in the future. The trick is not to pick the very best and the worst. Also, make sure you lower your expectation on the performance of your targeted mutual fund. This will eliminate your frustrations when your shares start to move.
Never consider the present best performing mutual funds mentioned the magazines and literatures including the web.
Determine what approach to choose. There are two: the buy-and-hold approach and the market timing approach.
If you prefer buy-and-hold approach, you should be ready to take the risk of waiting for the best time to sell your stocks. The market timing approach on the other hand would give you the freedom to select what is the best time you think is the most profitable. And like the buy-and-hold approach, there is also risk involve in this.
Although these would not assure you that you end up winning back more money than you have invested, it would increase the probability that you get the best performing mutual funds possible.