There is a lot to know about mutual funds. If you read the typical Wall Street media sources - there is a lot to "un-know".  

Wall Street has reasons ($$$) to sell you funds. They spend big dollars on the naming and marketing of funds.  They are snake oil salespersons.  Beware!

Today we focus on stock funds identifying clues that a fund will perform better than its peers.

Though past performance is interesting - that's water under the bridge!   There is a good reason for the disclaimer, "past results do not guarantee future results."   It's true!  

The two best indicators of FUTURE results are expense ratio and diversification.

These are indicators not guarantees!

Expense Ratio:   Morningstar, the well known mutual fund analysis company has published multiple papers showing a very strong, nearly perfect correlation to fees and future performance.  The lower the fund's internal fees (expense ratio), the better the future performance - this applies across all asset classes.   Click here to email a request for a PDF of the paper.

Diversification:  Many funds only have 25-150 stocks.  Depending on the asset class, numbers like 1,000 to 5,000 stocks produce better results with less volatility.   Click here to email a request for information showing how diversification works.  Note that our clients are diversified into 15,000 stocks around the world.

Two More Important Mutual Fund Attributes

Turnover %:   How much is the mutual fund manager buying and selling in a desperate attempt to get better results?  Choose funds with less than 10% turnover. However, in the world of financial product sales/marketing, many funds are 50 to 100%!  This is an indicator that they "have no clue".

Cash %:  A retail mutual fund opens its doors to anyone.  Financial product salespersons are often moving their clients in and out of funds. The funds must hold a "cushion of cash" to accommodate all the "churn". Cash is not working for you - you are in the fund to have your money invested.   Choose funds that have less than 1% in cash. Often it is 2-5%. Over the long haul, this is a drag on results.  Note that our firm has access to Dimensional Fund Advisors (DFA) - not available to the public. With less churn induced by random people moving in and out of their funds, they are able to keep their cash level extremely low, meaning a higher percentage of the fund is working for you.