Equity Mutual Funds

What do we want from an Equity Mutual Fund? The Best Funds to get a higher return with a lower relative risk relative to the average funds.

From the book a Random Walk Down Wall Street by Burton G. Malkiel:

1. From 1988 – 1998 less than 20% beat an industry average index after fees.
2. About 20% of Mutual Funds are worth owning and many are closed to new investors.
3. From 1977 – 1997 an index beat the average fund by about 2% after fees.

What does this mean:

1. AVOID Mutual Funds with Front End or Back End Loads, High Fees and Average Performance.
2. Identify and buy the top 20%.
3. Never pay high fees for an average fund.
4. No load funds are better than a loaded fund. One reason is the lower cost and fees.The other reason is if you have a lower performing fund it is mentally more difficult to sell it when you have a load.

If a no load fund does not perform, find a better one and move on. Why do funds have a load? Is it for your benefit?

Something called the Efficient Market Theory says that the Equity Market is efficient and it is more important to focus on the right allocation rather than a specific fund. Personally, I think it is very important to have both the right allocation and the best fund. It is important to do your homework and buy the best funds.