Posts Tagged ‘fund screening tools’

7 Ways to Pick the Best Noload Mutual Funds and ETFs

Scientific Criteria for Selecting Top No Load Mutual Funds and the Best Mutual Funds and ETFs

People simply want to invest in what they hope will be the top no load and the best noload and exchange traded funds (ETFs). They want selection criteria that can lead to a higher probability of doing better in the future on both a sustained and risk-adjusted investment fund performance basis.

With real lives to lead, people who are not professional investors just want an efficient, but effective fund identification process. They want to pick the best mutual funds and ETFs that will make their investment assets work for them. They do not want to have to “work for” their assets by spending large amounts of time monitoring and repeatedly changing from one mutual fund or exchange-traded fund to another.

Millions of individual investors run futile hamster wheel races pursuing the illusion that the superior past performance of funds and individual securities will lead to superior future performance. The Pasadena Financial Planner has written these articles for those of you who want to stop “chasing your personal finance tail” and get on with your real life. Of course, it is difficult to stop running in a personal hamster wheel, unless you are convinced that there is better approach that you can implement yourself with relative ease. This article and this website should be good news to you, because it provides a better way for you to find the top no load and the best and ETFs.

Low Cost No Load Index Funds and ETFs Simply are Better

Taken as a whole, the vast body of investment research studies show that there really are better approaches to buying and owning and ETFs. You do not need to frantically chase fund performance. Performance chasing simply does not work.

The vast majority of individuals who chase fund performance get results that are far worse than a passive approach. Better performance tends to come to those individual investors who calm down and try to understand what has actually been demonstrated to work in the investment research literature.

Below we introduce seven articles on selection criteria can lead you to the best no load and ETFs to hold for the very long term. In particular, note that you should use the first six selection criteria first. Only then should you look more closely at a fund’s past performance — and then only for the purpose of eliminating the worst historical performers. Read these seven articles for all the details!

In addition, if you want to use these 7 selection criteria to find the top no load and the best noload and ETFs on your own, you need some automated tools. Free ETF and mutual fund screening tools and free mutual fund databases would be a good thing. To find the best and ETFs, of course, you also need access to automated fund screening applications that have accurate and up-to-date data sets. The Pasadena Financial Planner has also written about screening applications that you can use free on the web. Click the Sitemap to find these articles.

The Best Mutual Fund Selection Problem — Solved for Individual Investors

This “Best No Load Mutual Funds” website provides two very key parts of the mutual fund and ETF selection puzzle for individual investors! The 7 scientifically based selection criteria introduced below provide rational fund screening rules.

These 7 screening criteria and the information provided on this website about free online investment fund screening tools can help you to winnow down the tens of thousands of available investment funds. As a result, you can reduce the selection problem down to a much more manageable number of funds for you to evaluate more carefully prior to investing. You do not have to pay high fees to an expensive financial advisor who will tell you to pick expensive funds with better performance that most often will turn out to be mediocre or worse in the long term.

Read the summaries below, and then click on the links for more information about these 7 scientific no load mutual fund and ETF selection criteria.

1) The Best Mutual Funds Have NO Sales Loads and NO 12b-1 Fees

The great majority of investors buy funds through advisors and pay a very, very high price over their lives for doing so. You simply do not need to pay hefty sales commissions (loads and higher annual expense ratios) to financial advisers who will only offer to you those funds that will pay them these hefty sales commissions.

When you pay someone’s sales commission who only tells you about expensive , you shoot yourself in both feet. First, you pay for inferior inferior advice. Second, you end up living with fund expenses that kill a substantial portion of the growth of your personal investment portfolio.

All mutual fund sales commissions and marketing fees can be avoided entirely by buying from the many mutual fund families that will sell fund shares directly to the public without such fees. ETFs will inevitably involve brokerage commissions, so always use discount brokers. Then, do not trade ETFs. Instead, sit tight with a very long-term buy-and-hold strategy to amortize these exchange-traded fund trading costs.

This investment fund selection criterion is very simple. Zero is the maximum amount of front-end load and back-end load fees that you should to pay. Zero is the maximum marketing or 12b-1 fee you should pay. Just say no.

2) The Best No Load Mutual Funds Have VERY LOW Management Expenses

Lower investment management fees are better. Lowest is best, and the lowest means passively managed index and ETFs. Since there are numerous funds with annual expense ratios below .25%, look there first.

The higher the annual fund expense ratio the more you should question why you should pay such higher expenses. Paying more tends to lead to inferior rather than superior performance net of you overall investment costs and capital gains taxes.

3) The Best Noload Mutual Funds Have VERY LOW Portfolio Turnover

Lower portfolio turnover is better. Higher turnover increases hidden fund transactions costs, which tend not to be recouped through better performance. Look for single-digit and very low double-digit annual portfolio turnover rates in the no load index funds and ETFs that you purchase.

4) Avoid Large Actively Managed Mutual Funds

When they trade their overly large portfolio positions, large actively managed funds tend to affect securities market prices negatively. This can only drag down their net fund performance. The more they trade, the worse it tends to get. High trading costs suck value out of the mutual fund portfolio, and these costs are on top of the management fees that you pay directly.

High turnover by large funds should be a big red flag to you. If you avoid actively managed funds altogether, then your concerns about excessive fund size can be greatly reduced. Very large index funds need to manage their trading impact, but their turnover is far lower than actively managed funds.

5) Choose Mature Mutual Funds

The ETF and mutual fund industry throws a whole lot of new fund spaghetti on the wall to see what will stick. IF a new fund has a lucky streak, individual investor assets and “advised” assets come running their way. This is new fund success — at least success for the fund company.

However, when you invest in a very new fund, and it fails to grow, the fund is very likely to die or to be eaten. Rarely do lousy young and ETFs fold and refund money. Why confess incompetence and give back assets that could still yield fees?

When new funds do no attract enough assets, these “failed” funds (and your invested and diminished assets) most often will get merged into other funds. Unfortunately, new failed funds tend to get merged into larger funds with noticeably inferior historical performance.

Fund companies do not want to take any of the luster off the of their currently hot funds. Therefore, your money gets tossed into a bigger dog or just average fund. To avoid participating in this frenetic new fund infanticide process, only pick funds that have been in business for at least a few years.

Three years is probably enough. Mutual funds are like dogs in some respects. They grow up in just a few years. However, if they get caught in traffic at the wrong time on “The Street,” they may get run over or be eaten by a bigger dog.

6) Avoid Very Small Mutual Funds

Small funds cannot operate efficiently. They need a minimum critical mass of assets to fund required management expenses. Simply avoid very small funds. One or two hundred million dollars is probably the minimum. A higher minimum would also be fine, since there are still many larger funds to choose from that would meet these other criteria.

7) Screen Out Inferior Mutual Fund Performance

Evaluate the historical investment performance of and ETFs, but only AFTER using other screening criteria. Superior or average past fund performance tells you ABSOLUTELY NOTHING about how a fund will perform in the future. Pay attention to the fine print in the prospectus that says that past performance does not indicate future performance, because this has been shown to be true.

Ignore all the fund industry’s selective marketing of only their past winners. Individuals need to move beyond their naive and flawed notions about historical investment performance.

Modern, highly competitive, and real-time securities markets are auction price setting mechanisms that force the mass of smart and not-so-smart professional and amateur investors to accept largely average returns over time. Only very poor past performance tends to indicate potentially sub-par performance in the future, and that is probably due to higher costs. Therefore, eliminate only the worst of historical performance during fund screening and choose from the remainder — despite whether a fund has had superior, average, or even somewhat below average performance in the past.

Net of costs, four and five star funds are no better than three star funds and probably no better than even two star funds. Eliminate the bottom one-tenth to one-third of funds on a historical performance basis and choose from the remaining nine-tenths to two-thirds without stressing their past performance. Instead, choose no load index funds with very low costs and turnover.

Passive, low cost, noload index usually have higher risk adjusted performance

If you evaluate the investment research literature, you will find that buying passive, low cost, noload index and ETFs are far more likely to lead to higher risk adjusted investment performance over the long run. You can help to break the cycle of frequent fund buying and selling. You can get off the performance chasing hampster wheel that the securities industry wants you to keep running on for your entire life.

Securities sales people and financial advisors get paid more, when you pay more. That is why they shamelessly tell you that you must “pay more to get better performance.” This is complete rubbish. The investment research literature says the opposite. Pay less and get more.

Push the button — get some cheese. Tell naive investors to pay more — get some expensive cheese and some big bonuses. That is why rats and financial sales people keep hitting their buttons. When rats push the button, they get cheese. When financial salesmen push the button, they get paid very well.

Unfortunately, you end up being the one who pays them. If they really understand the investment research literature — and most securities sales people do not — then they just hope that you will never figure it out. Or, you might not realize the problem until years later, when your personal investment portfolio is much smaller than it could have been.

However, if you have already figured out the problem, then these 7 selection criteria offer you a better solution and a relatively easy way to pick the top no load and the best and ETFs. Become a proactive and extremely cost-conscious consumer of financial and investment products today!

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