After you decide which categories of funds are likely to be best for you, you can begin to narrow your choices still further. One way to start is by looking at the track record of a wide selection of funds in a particular category. Sources abound for this information.
Magazines that deal with personal finance and investing topics, such as Money, Smart Money, and Kiplinger’s Personal Finance Magazine, run periodic special reports showing comparative investment results for hundreds of mutual funds. The publications usually group the funds by categories, so you can quickly zero in on growth funds, index funds, municipal bond funds, or any other fund type of interest to you. Similar reports appear periodically in business magazines like Business Week and Forbes, in The Wall Street Journal, and in the business sections of many local newspapers. Visit your local library and ask a librarian to help you locate the most recent mutual fund issues of your favorite financial periodical or check out the publication online. The data you need ought to be easy to find.
Be sure to compare the one-year, three-year, five-year, and ten-year annualized returns for funds in the specific type or types of funds you are considering. Look for consistently strong results. The fund that amassed huge profits over the past 12 months may have done poorly in previous years, suggesting that next year’s performance may lag again.
A better bet is a fund that shows an above-average performance year-in and year-out for the past five years or more.
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