Dont chase the best funds

If you ask a seasoned mutual fund investor what the three biggest keys to
successful investing are, he or she is bound to say discipline,
discipline and discipline. What does that mean, exactly? It means
avoiding the temptation to react with the news.

A common behaviour by many new investors is that when they hear on the
news that a particular stock or mutual fund is poised to explode, they
run to their computers or cell phones and switch over every penny in
investments that they have to this new hot stock. While this practice can
work some of the time, if it worked all of the time without fail,
investing would be a lot easier and everyone would be doing it.

Discipline is the practice of sticking with your advised investment plan,
even if a more tempting offer comes along. When you first start to
invest, you should have a good idea of your risk profile, your short and
long term goals and the amount of money you’re able to invest. You should
pick a fund that meets all of those criteria and then settle in for the
long haul. The only way to make a lot of money with mutual funds is to
trust that they will give you the returns you desire, and stick with it.

There are times, however, when sticking with a fund may not be a good
idea. If your fund is haemorrhaging money and has been for months, you
may want to switch to a more stable mutual fund. But you can’t switch
over your money with every bump and swerve in the market. Not only will
fees and taxes eat your principle up, you’ll have no long term plan to
help you invest and meet your goals.

The two biggest demons you have to deal with are fear and greed. Both of
which are valid human emotions, but both can get in the way of logical,
disciplined mutual fund investing. If you can manage both your greed and
your fear, you can stay away from the lemming-over-the-cliff mentality
that grips so many other investors. Mutual fund investing is one case
where you do want to stay the course.

Temptation is a scary thing in all aspects of life. The temptation to run
to the smoking hot and fashionable mutual fund of the week is extremely
high, so high in fact that many investors take it like a month to a
flame. If you don’t want to get burned, avoid the investment tips from
your friends and use discipline as your number one investment strategy.

This entry was posted on Sunday, March 7th, 2010 at 12:10 am and is filed under Mutual Funds. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Dont chase the best funds

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