Go to your local library and see if they’ve still got the Wall Street Journal from Tuesday or Wednesday of this week. The third quarter just ended and they published a page showing the top ten (fifteen?) funds in each category, with their 3Q performance, last year’s performance, and last-ten-years’ performance, annualized to percent returns. Yes, you can find this info online, but the WSJ put it all on one page in a format that I found very easy to digest.
Remember that the ten-year numbers include September 11th, when the overall markets took a serious hit. Also realize that “past performance is not a guarantee of future earnings,” but double-digit ten-year returns usually indicate that there’s a good investor using sound strategy to turn a little money into a lot of money.
You’ll notice that index funds (which track indices like the NASDAQ or S&P 500) have their investments dictated to them, more or less, and so the amount of active trading is low – which keeps the fees low. An index fund that makes 12% and charges 0.25% will serve your interests better than an aggressive fund that makes 13% and charges 1.5%. Nonetheless, there are a few funds that occasionally produce annual yields of 60% or more (and in off years merely lag the market by a few points). In the long haul such aggressively managed funds don’t beat the market, but in the short term they can give your portfolio a real boost.
I’m almost 30, I’ve got a new mortgage and about $30k in the markets right now, and I take care to max out my Roth IRA each year, so if I came into a five-digit inheritance, I’d probably pour most of it into the principal of my mortgage. If I didn’t have a large debt to pay off, I’d max out my Roth investments in an aggressive fund (raw materials or natural resources are a good bet with China growing so quickly) and put another un-sheltered $4k into a conservative index fund like Vanguard’s S&P 500 (VFINX). That strategy assumes that I’m willing to pay taxes on the modest returns of the Vanguard fund 40 years from now, but that I’d rather not pay taxes on the more aggressive returns of the high-risk fund. Of course, by that point in time my investments should be mostly tax-free bonds to avoid having my retirement savings wiped out by a bad year.