How are mutual funds as a short-term investment?
May 18th, 2010
I’m talking about less than and up to one year. Please specify reasons why and why not. Any experience is really appreciated.
Do mutual funds make good investments in general?
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Wow! I have seen some bizarre and uninformed answers before but….
Well, anyway…this is a list of mutual funds I own and their short- term returns ( these are year- to date )
FEMKX : 25.50%… emerging markets
EUROX : 16.56%…Eastern Europe, heavy energy
FLATX: 25.87%…Latin America
FINEX: 21.49%…international small companies
ICENX : 22.9%…energy
NBGEX: 10.25%..mostly U.S. mid-caps
Now as far as " fees" and " charges" go…why wouldn’t I pay someone 1.2% or so to make this kind of money in a year? Shouldn’t I pay something for their expertise and results?
Also the absolute longest " short- term trade fee" I EVER heard of was180 days…most are less…some 90…even 30 !!
Now I’m not saying " Jump right in !! I’m just saying ignore misinformation…look at some charts… and think for yourself…." Is the world economy good overall?" " Are we really going to cut down on the use of oil and gas?" " Does every single item on a store shelf come from China?"
"Hmmmmm… where can I invest ?"
…and even if you don’t like the " risks" of the funds I mentioned, there are thousands of more " conservative" ones that can make at least half of those returns for you…in a year.
P.S. One other thing: those are returns since Jan 1…. I have held these funds over 4, 5, or 6 years ….and sometimes results were even better!
For a short-term investment, mutual funds are a bad idea. There’s too much expense involved in getting in and out.
Mutual funds are not intended to be utilized as short term investment vehicles, as many penalize those who only hold for a short period of time. Further the vast majority of mutal fund managers make investment decision with the back drop of a long period with which to appreciate the invested capital. In other words, the manager is not picking todays hot stocks, but stocks they feel present value or growth over the long term. If you wish to make money quickly individual stocks are the best way, as they do not charge management fees.
In general mutual funds provide you with the abitlity to participate in the gains afforded by the stock market, without the time commitment needed for individual stock selection. Though mutual funds can not be picked at random, as they variy greatly in respect to fees, invesment types and historical performance. The best thing to do is educate yourself on the nuances of mutual fund investing and take it from there.
The answer is: it depends. For short term, you could go into short term bond funds with investment quality or gov’t bonds. However, they will generally pay about the same as a good money market fund (5%-which of course is taxable).
You would want to avoid any funds containing stocks; they’re too risky with such a short investment horizon of 12 months.
On the whole, yes, mutual funds are excellent investment vehicles for the vast majority of individual investors.
WELL RUN mutual funds held over FIVE YEARS or more can make great investments.
One year or two years is too short a time to hold Mutual Funds.
See the BigCharts links below.
2 Prime examples. Year to date, you would have been safer and made as good a return (risk adjusted) by putting the money in a money market fund.
Ginnie Mae mutual funds would normally be considered very safe. They average a return about five per cent. A year ago was a tad more which made them attractive.
Fidelity GINNIE MAE mutual fund which is all bonds:
Yields(%) as of 08/28/2007
30-Day Yield: 4.95 APR
Price adjusted Performance (%) as of 08/29/2007
Actual YTD 2.80%
This fund has all the markings of a good investment for a long term conservative investor says Morningstar.
Lipper Ranking as of 07/31/2007
1 Year #13 out of 59 GNMA
5 Year #8 out of 54 GNMA
10 Year #6 out of 30 GNMA
============================
Case #2 SPY
A mutual fund tracking the S&P 500 (index fund)
Cumulative Total Returns3 (%)
as of 07/31/2007
S&P 500 Comp
YTD 3.62 3.64
1 Month -3.09 -3.10
3 Month -1.39 -1.39
6 Month 2.07 2.10
——————————-
Another S&P 500 fund:
Quick Stats
YTD Return (08/29/2007) 4.42%
NAV (08/29/2007) 101.76
12 Month Low-High $87.76-$107.72
Look at the variation of the price in that time frame. It is too risky for one year.
Long term? I love all these examples and am invested in them. Short term of just a year or so? You could have beaten or matched that with a good money market fund too. You would have slept better too. See the charts on the links below.
Mutual funds are not meant to be short term investments. Having to sell stocks for constant redemptions, or having to put so much money aside for redemptions, would drive up their expenses, and lower investors returns.
For such a short term, pretty much anything is high risk. Decades are where the law of averages save you from risk. If you want something to do with your money for less than a year, put it in a money market fund.
Hello,
Mutual fund investing is mostly geared towards long-term investors. It is very difficult to add excess value by implementing a short-term mutual fund investment strategy. Mutual fund portfolio holdings are usually reported on a delayed basis so you will never know the current holdings of any mutual fund portfolio. You might be able to implement a short-term mutual fund strategy with sector mutual funds, because here the strategy is primarily based on asset allocation and only secondarily based on the mutual fund manager or on individual security selection.
Mutual funds can be very good investments if you do the necessarily mutual fund research to find the best mutual funds for you. As the editor of a mutual fund newsletter focused on no load mutual funds, some of the factors that I look at are historical mutual fund performance, expenses, consistency and especially the quality of management. I am very selective when it comes to mutual fund manager and analyst backgrounds and experience. You do not necessarily have to pay any more for a highly qualified mutual fund manager, so why not select mutual fund managers with the best credentials.
Any strategy can be long-term, but value investing tends to be longer-term in nature than growth-oriented strategies. Further, value strategies tend to outperform growth strategies over time. I highly recommend a research report on the http://www.tweedybrown.com website called “What Has Worked in Investing” that shows how different asset classes have performed over time. I also highly recommend The Intelligent Investor by Benjamin Graham. Mr. Graham is considered to be the father of value investing and one of his students was Warren Buffett.
I hope this helps.
Michael A. Weiss, CFA
The Editor
The Mutual Fund Investor
http://www.mutualfundinvestor.net