What Every Investor Should Know About Mutual Funds


This week’s AAII Weekly Digest highlights these “must-read” AAII articles:


Tracking the S&P 500 With Mutual Funds and ETFsTracking the S&P 500 With Mutual Funds and ETFs

There are more than 40 mutual funds and exchange-traded funds (ETFs) widely available to investors that explicitly list the S&P 500 in their name. These funds track the large-cap index or follow a strategy based on a variant weighting or a subset the index. A challenge for investors seeking passive exposure to the S&P 500 index is choosing which fund to invest in. The decision depends on both the characteristics being sought and the willingness to look closely at the strategy that a fund is designed to follow. Here is a discussion of some of the basic differences between the various S&P 500 funds.

Leveraged ETFs: Multiplying by the Unknown

William J. Trainor Jr.

Leveraged ETFs are designed to return a daily multiple ranging from positive three times to negative three times on an underlying index, although there are a few that return a monthly multiple. The underlying indexes are primarily the most popular: the S&P 500, Arca Gold Miners Index, and the Nasdaq 100. However, the returns realized by an investor will be below what these ETFs’ names suggest due to a decay in realized leverage over time.


The Truth About Top-Performing Mutual Fund ManagersThe Truth About Top-Performing Mutual Fund Managers

It’s only natural for investors to look at past performance when selecting managers of either mutual funds or separate accounts. Almost everyone is impressed by a strong track record. However, investors may be making a crucial mistake by fleeing from recent losers and flocking to recent winners, especially if they act on relatively short-term results. This article explores the tendency of top managers to underperform, and the reaction of investors when they do.


What Every Investor Should Know About Mutual Funds

In mutual fund investing there are no immutable laws to guide us, as we have in physics. But then again, it’s not professional wrestling either. This blog post distills some collective experiences of mutual fund investing. Some of it has empirical evidence pointing its way, but most are simply common sense axioms that investors often set aside or forget in the heat of making an investment decision.

Our Member Question for this week is:

How worried are you of a market downturn in the next three to six months?


Vote to answer this week’s Special Question: What is your outlook for the U.S. stock market and economy for the rest of 2017?

Last Week’s Results:

What steps have you taken to transfer financial decision-making in the event of cognitive impairment? Choose all that apply.

Poll results are as of 9 a.m. (Central) on Monday. 2,732 respondents.

Majority of Readers Have Taken Steps in the Event of Cognitive Impairment 

The aging process can hurt your ability to make proper decisions about your finances. On average, 29.2% of individuals aged 80 to 89 have cognitive impairment. While the aging process affects everyone differently, it is important to protect the investment portfolio you have spent years accumulating. Cognitive impairment has a direct, negative impact on a person’s and couple’s finances, yet many do not want to talk about it. Last year, a State Street survey found that only 32% of investors have discussed planning for their possible cognitive decline with family members. More importantly, only 39% of investors have a suitable plan for if and when their decision-making skills diminish. Our weekly survey and special question asked our readers what steps they have taken in the event of cognitive decline.

AAII’s Guide to Top Mutual Funds 2017

Selecting a mutual fund, while less time-consuming than investing in individual securities, does require some homework. No one should put money into an investment that is not understood. This does not require a detailed investigation of the fund’s investments, but it does require an understanding of the fund’s investment objective, strategy, risks and performance history. The latest update to “AAII’s Individual Investor’s Guide to the Top Mutual Funds” covers nearly 1,600 funds and lists the total return performance of common index benchmarks, summarizes average performance and risk of the fund categories used in this guide, allows you to compare the performance of the 50 most widely held funds, lists the 50 best- and worst-performing funds of 2016 and much more.

The AAII Weekly Digest is one of the many benefits of AAII membership. To learn more, consider a 30-day Trial AAII Membership to start becoming an effective manager of your own assets.


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