The Average Returns to Expect on Mutual Funds


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When you are deciding on a vehicle for investing your money, mutual funds may come up in conversation more often than not. Because the risk is spread out, the investment is perceived as safer than gambling on individual stocks. It’s also much more lucrative than squirreling away your hard-earned dollars in a low-interest-bearing savings account. If you use mutual funds as a long-term investment strategy, you can earn returns of up to 12%. However, it’s important to choose the right fund and watch it closely, because if you invest in a loser, you may wind up earning far less in interest.

Consistent Investment Strategy

The single best way to construct a safe, diversified investment portfolio is to make sure you pick a mutual fund with a manager that invests in the same things consistently. You also need to check on the manager’s investing track record. If your fund is designed for investment in particular classes of stocks, then you need to follow up to ensure that the manager is indeed sticking to the plan. If he doesn’t, then random picks and sporadic buying could jeopardize your long-term returns.

Pick a Winner

Sometimes the market as a whole is bad. Other times, the sector that your mutual fund owns stocks in may be having an off year. Neither case merits jumping ship. It’s better to weather economic dips and spikes such as these in favor of looking out for your long-term gains with a fund. On the other hand, if you have a mutual fund that lags behind similar funds substantially for more than one year, then you may have a problem. Keep a close eye on the fund, and be prepared to walk away if you think you may have a loser on your hands.

Watch the Management

Be aware of the fund manager’s activities at all times. Read your annual statements and check on the performance and the manger’s purchases occasionally. If management changes on you, then it may be time to keep a closer watch. You need to ensure that the new fund manager closely matches the old in investment choices if you fund has been doing well, otherwise you may be in store for a bumpy ride. Conversely, if your fund was tanking and management changes hands, give the new guy a shot before you decide to sell off.