Vangard Investments
October 16th, 2008
Question: which investment house is best for mutual funds?
I have 70 thousand to invest. I want low risk aand hight yeld. I was told mutual funds 5 star is best- is that true. second, is vangard better then fadility for this or theyare the same.
Answer: I like Vanguard better than Fidelity, but both are good. Fidelity is higher cost and has more aggressively managed funds. Vanguard is low cost and uses investment strategies I believe offer the best prospects for long-term growth.
By 5 star funds, I believe you are referring to Morningstar ratings. These ratings are based on historical risk and return relative to a benchmark that is appropriate for the fund. Historical performance has never been shown to be a good predictor of future performance. To make good mutual fund selections, you have to understand why a fund performed well or poorly over any historic period. Investment styles go in and out of favor and certain types of funds tend to well or poorly when their style is in or out of favor.
In my opinion, you will do better selecting a diversified portfolio of low-cost index funds that are appropriate for you objectives. We would all like to have low risk and high yield, but the two are incompatible. Your choices are high return with high risk or low return and low risk. If you are a long term investor you are likely to do better by taking some risk, but long-term can be really long. Stocks lost on average for the 11.5 year period ending February of 2009. That is a long time to los money.
Still, there has been no 20 year period during which the S&P 500 stock index has returned less than a low risk alternative.
But be careful. Do not take more risk than you are comfortable with. Most mutual fund families including both Fidelity and Vanguard have risk profile questionaires on their websites.
Don’t be in a rush. Take enough time to carefully research your choices. Do not invest in anything you do not understand.
Vanguard’s website is www.vanguard.com
Fidelities website is www.fidelity.com
A kids’ view of retirement – Vanguard
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