When you're first getting started with , there's a tempting and seemingly logical strategy for picking mutual funds: just choose the ones that have been doing the best lately. It makes sense, right? We’re drawn to winners. This is why a huge amount of investor cash—over 150 percent of net flow in 2016—pours into funds with a four or five-star rating from Morningstar.
We all like to think we can spot a winner. Whether it’s a startup, a sports team, or a stock, we’re drawn to the idea of picking the one that will outperform the rest. This mindset is especially common in , where many believe they can find the mutual fund that will deliver incredible returns. For those treating to build wealth, the allure of finding that "needle in a haystack" is powerful.
If you've been involved in over the past few decades, you’ve probably gotten used to some pretty impressive returns. But it's wise to plan for a future where the good times don't roll quite as high. The fundamental rule is simple: over the long haul, stock market returns are driven by the real performance of businesses—their dividend yields and earnings growth.
It’s one of the most frustrating secrets in personal finance: the returns that mutual funds advertise are almost never what their investors actually earn. It sounds unbelievable, but even industry insiders like Fidelity's Peter Lynch and Mad Money's James Cramer have acknowledged the issue. While most people know that actively managed funds often struggle to beat a simple S&P 500 index fund, the reality is even harsher.
When you think about making money in the stock market, you probably picture buying a stock and selling it later for a higher price. But what if I told you that’s only half the story? For anyone serious about , especially those just getting started, understanding the other half is crucial.
When it comes to , almost everyone—from financial advisors to the media—points to a fund’s past performance as the key indicator of success. We’re taught to look at the track record to predict future results. But deep down, we know that performance is fickle; it comes and goes. This is a crucial lesson for anyone .
Have you ever looked at the stock market's performance for the year and then glanced at your own portfolio, wondering why your numbers don't quite match up? It’s a common experience for anyone involved in . The market might be up 7 percent, but your account doesn't reflect that full gain. The reason is surprisingly simple, yet it's something the financial industry doesn't spend much time highlighting.
How do you get ahead in the world of investing? The answer is surprisingly simple: buy a slice of every business in the United States and then just hold on to it. This straightforward concept is the key to winning a game that most other investors are almost guaranteed to lose. For anyone exploring , it’s important not to mistake simplicity for a lack of sophistication. It’s a principle that has stood the test of time.
There's a fundamental truth at the heart of that many people miss, but it's the key to long-term success. Warren Buffett put it best when he explained that what owners can earn, in total, is limited to what their businesses earn in total. Think about it: over time, the combined gains of a company's shareholders can't magically exceed the actual business gains of the company itself.