Witness Minnesota Mining & Manufacturing (better known as 3M), Oracle and Micron Technology, all of which suffered one-day drops of 10% or greater. And although economic pundits had warned of a slowdown in the double-digit earnings gains we’ve seen over the last few years, it was still not pretty to see shares pummeled. “In the year to come, with volatility likely to shake the market, it’ll be important for investors to devote time in finding the right mutual fund, one with a good crack record,” says Chip Norton, managing editor of Standard & Poor’s Web site, S&P Personal Wealth (www.personalwealeh.com).
That’s where we come in. This latest installment of the annual BLACK ENTERPRISE mutual fund roundup is designed to help you best gauge the market and invest wisely. We’ll briefly go over what experts expect for stocks and bonds in the upcoming year and look at some of the best places to put your money. At the end of our report, you’ll find a chart of the highest-ranked mutual funds, according to statistics compiled by Lipper Analytical Services, a Summit, New Jersey, firm thee tracks the industry. In all, it’s a package that will help you plan your initial plunge into the market if you’re a first-time investor. Or if you’re a seasoned mutual fund aficionado, we’ve pointed out fund groups that should shine during the balance of the year so you can better allocate your assets.
Before we dive in, here are the guidelines we’ve used in our report. First, we’ve focused solely on no-load mutual funds this year. Our reason is simple: load funds have you–the investor–pay a fee for covering the cost of advertising the fund.
For example, say a broker sells you on Fund X with a 5% front-end or initial load fee. Of the $1,000 you invest, $50 goes to the broker’s firm for having sold you on the fund. Then, even if in that first year your fund racks up a return of 10% or $100, half what should be your gain is lost. Yes, some funds let you spread that fee out over time or will sometimes waive it if you stick with an investment for five years or more. Yet with newspapers, magazines and television all in the hunt for investment stories, we feel a high-flying fund attracts more than enough attention to sell itself.
Finally, no matter what your goals for the years ahead, it’s best to approach mutual fund investing with a patient, long-term perspective. Over time, the stock market has averaged a 12% annual return. And though three blockbuster years in a row might have you feeling a bit feisty, we recommend that you keep any sum you place in mutual funds for three to five years. “Investors who are just now getting into mutual funds shouldn’t have a target date that begins with a ’19,”‘ says A. Michael Lipper, president of Lipper Analytical Services. “Instead, they should be looking as far out as the year 2010 by developing a portfolio holding