The best mutual funds can often be found in the largest and best fund companies or families. Don’t waste your time and effort looking backwards to find the best or best funds to invest in. Familiarize yourself with the world of mutual funds before you stray in the wrong direction.
There are thousands of stock mutual funds and bond funds to choose from and hundreds of fund companies (families) that offer them. In addition, lists of the top mutual funds and the largest and best fund companies are published every year. You and I both know that terms like top and best are subjective. But “biggest” has a more specific meaning in the mutual fund world, referring to the dollar value of assets under management. Is bigger better and are the biggest funds and fund companies the best?
From year to year, the top mutual funds ranked by performance vary significantly, especially when it comes to stock funds. Simply put, any fund can get lucky in any given year by taking a calculated risk; but it’s very unlikely that the same fund will be a repeat performer the following year. So it’s a losing proposition to go through the list of top funds each year and make a selection based on past performance. In addition, you keep switching funds and companies to stay at the top of the list. You are working against yourself and working backwards.
Something worth noting that you might notice when browsing a list of top mutual funds: The top funds tend to come from a select group of the largest fund families. One reason is that these companies can offer close to 100 different funds or more, compared to just a handful for the smaller competitors. The 10 largest fund companies manage more than 50% of the money invested in mutual funds. A small company might get lucky every now and then and make the top fund list, but over the long run, the big boys will come out on top. Begin your selection process by first focusing on fund companies rather than individual funds.
Decide whether you would rather work and pay with an agent (consultant, planner) or work directly with an investment company and save on investment costs. This will help you narrow the field. Then select one or two fund companies with which you would like to invest. For example, the three largest in the industry are Vanguard, Fidelity, and American Funds. With Vanguard, investors can work directly with the company and enjoy the lowest cost of investing in the company. American funds are offered through agents or advisors who charge directly and/or indirectly for their services, and Fidelity works both ways.
Once you’ve opened a mutual fund account with one of the biggest and best mutual fund companies, you’re in business. Now you and/or your advisor can search the list of funds on offer for the best mutual funds that best suit your needs and financial goals. Making changes in the future is as easy as a phone call. After years of experience in the business, I believe that the best fund companies have risen to the top of the ‘biggest’ list by offering a wide range of quality funds and excellent service over many years. They know that reputation is a top priority if they are to stay on top in this competitive business.
You don’t have to own the best mutual funds in every category to be a successful investor. First, focus on doing business with the best fund companies. Then select the funds they offer that have consistently performed well compared to their benchmarks and the competition and meet your needs and goals. You should invest in mutual funds for the long term and not speculate on the top funds of the last year.