3 Reasons Why Your Mutual Fund Returns Will Always Stink

By David C Lewis, RFA

Good mutual fund returns are hard to come by these days. Most actively managed funds are don't give their investors market-beating returns. It shouldn't come as a surprise though. Regulations have have helped this industry (and also hurt it), and as a result, this has pushed down returns for many individuals.

You can try to get better mutual fund returns, however, don't expect these products to solve all of your retirement problems.

Your mutual funds are probably posting inflated returns. By not paying attention to historicals that are posted by the fund company, and instead asking an independent adviser to help you calculate your true return, you'll get a better idea of how you're doing. The fund company typically shows you the simple average instead of the compound average which will result is higher returns on paper. It's good for business but not for your portfolio.

Unless you have a scientific calculator, you're definitely not going to get too far.

The second step in raising your mutual fund's return may be just to sell the fund. I know that's not really boosting the return of the fund, but you may be better off investing in something else. Actually, that's one of the basic rules of investing: understand what you are investing in. Unless you understand every business that that mutual fund holds, you are asking for trouble. You're not being a smart investor, you're just guessing.

One final point to consider is choosing mutual funds that invest in value stocks or smaller companies. Also, if your fund itself is small, that can be a big plus. If the fees are low, and the fund is small, under the right management you could end up seeing strong growth that will help your portfolio overcome years of lackluster performance.

About the Author:

Author: Only so much information can be covered in one article. If you would like more detailed information about any aspect of personal financial planning, please visit David's website.