One of the most popular ways to choose an investment fund is to invest with the crowd in today’s hot funds. Unfortunately, jumping from one winning chest to the last is a recipe for disaster. Crowd-tracked mutual funds have generally performed well in recent times and tend to drive all of the new mutual fund sales.
Investors generally allocate their new investments to a small number of mutual funds and fewer mutual fund companies. Investors have invested more than $ 400 billion in 2,843 different mutual funds, but a third of these assets are invested in only 50 of those funds and half of those assets are in the top 100 funds.
There are benefits to pursuing market leaders. The largest mutual fund companies and largest fund companies have the power to reduce costs and attract the best professional money managers. However, the bigger limitation is that the bestselling mutual fund today may not be the winner tomorrow. This applies to any mutual fund, but it seems to affect sales success and which fund attracts the most attention, most of the time.
Therefore, buying the stock fund that was the best selling yesterday is not a strategy that produces excellent returns. You don’t absolutely have to go the opposite way and ignore this hot money, but you do need to understand its limitations and strengths. They have become bestsellers because they have the merit, but you need to access this feature within your well-diversified portfolio, not in the current investment trend of the public.