You want your retirement money to grow as fast as possible. One way to improve the return on your investment is to purchase the best No-Load Mutual Funds and hold them to minimize transaction fees. This is better called Portfolio Building.
Where does this start? It all begins with an understanding of the current financial state and future needs. A financial assessment is needed along with a risk assessment. Then the key is Diversification, Diversification, Diversification of No-Load Mutual Funds.
No-Load: It is really important to purchase a no-load fund if at all possible. Sometimes, when you research mutual funds that invest internationally, the best funds have a load and in this instance it makes sense to buy a loaded fund.
When you pay a load you are really paying the mutual fund to sell it to you and others. Also a loaded fund has higher annual fees called 12b-1 fees used to promote the fund. Yes we pay to see our mutual fund company on TV or in print. Why pay money to a mutual fund so that they can sell and promote it to others?
The Best Funds: Mutual funds are given a grade and I use the Morningstar 5 star rating system. This looks at risk and return from a historical perspective. Another indicator is the size of the mutual fund and being too big or too small can hurt your return. Typically, for mutual funds with the same investment objective, the largest Morningstar 5 star rated mutual funds will not perform as well as medium sized Morningstar 5 star rated mutual funds.
Diversification of Stocks: It is important to have a broad portfolio that includes the best investments around the world. Multiple mutual funds are needed that invest in different sizes of companies and different industries, including commodites. Having mutual funds that invest internationally can improve your return while reducing risk.
Diversification of Bonds: It is important to have bond mutual funds with different time horizons. Short term bonds seldom, if ever, go down and have little exposure to a capital loss as interest rates rise. Long term bonds over a longer holding time will give a better return.
A retired person should have a certain amount of cash in a money market account. The reason is freedom to sell an investment when you want rather than when you have no other alternative.
Diversification of Time: Since it is impossible to know when an investment is at a market top or a market bottom making contributions on a regular basis makes sense. This is also called dollar cost averaging. Disciplined investment with regular contributions helps take some of the volatility.
Happy investing!!!
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment