Mutual Fund Investment Tips

by Alan Lavine and Gail Liberman

Due largely to their low cost and better performance, we generally prefer index funds, which invest in the same securities that make up a published index.

But at times, it pays to invest in actively managed stock funds.

When?

Perhaps when you invest overseas. Foreign stock markets are thinly traded and inefficient. So fund managers often can find bargain stocks in places like Asia and Latin America.

No-load fund groups with well-managed foreign funds include the Matthews Funds and Oakmark Funds.

You might have a tough time finding a precious metals mutual fund that tracks an index. Yet, mutual funds that invest in previous metals could be attractive to own. These funds perform well during periods of higher inflation and crisis. Experts generally suggest that you should keep 5 to 10 percent of your assets in precious metals mutual funds.

As far as index funds are concerned, the Vanguard Group (www.vanguard.com) generally charges the least. Low fees gives your fund’s performance an extra nudge.

There are certain times when it also pays to avoid mutual funds. If you have several thousand dollars to invest, bonds rather than bond funds may be a better choice. Reason: Bond funds do not mature. Their prices fluctuate. So it’s possible to lose money if you go to sell a bond fund. By contrast, a bond issuer guarantees to repay your principal—provided that you hold it to maturity.

Also, you get a greater guarantee with bank money market accounts or savings accounts than you do with money market mutual funds or money funds. Bank money market accounts are FDIC-insured to $100,000 per person per bank. Money market funds are not federally insured.

 Yet, by shopping around, you often can earn the same or higher yields from some bank money market accounts. Go to www.bankrate.com for a list of the highest yielding bank money market accounts. However, if you’re dealing with a bank out of state, it pays to check for complaints against the entity at www.ripoffreport.com.

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "Rags To Retirement," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show. Al and Gail’s new book is "Rags To Retirement:  Stories from people who retired well on much less than you think," published by Alpha Books.

More articles by Al and Gail can be found here.