by John Bajkowski
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AAII members have always shown a great interest in mutual funds and locating good tools for selecting and monitoring funds. Ninety percent of AAII members invest in at least one mutual fund, while 45% have seven or more mutual fund holdings. The appeal of mutual funds is obvious and strong—an easy and inexpensive way to invest in a diversified portfolio managed by a professional.
Whether you are a passive investor looking to invest in a single fund to cover both your domestic and international diversification needs with an investment in a mix of stocks, bonds and cash, or an active investor looking for a specialty fund to place a bet on the healthcare sector, chances are that you have a number of funds to choose from.
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While 19% of our members use a financial planner to help with their investment decision-making the vast majority of our members make their own allocation and fund selection decisions.
If you are like the typical investor, you have to pick funds for your brokerage account, 401(k) plan, and any other tax-deferred account you may control. While many investors take the perceived easy way out and simply put together a portfolio of four- and five-star funds, academic research seems to indicate that top-rated funds do not typically continue to outshine their counterparts going forward. Before investing in a fund, it makes sense to take a look at investment style and portfolio concentration of the fund and gain a feel for why it did well in the past. Many diversified funds have achieved their strong performance by making risky bets on a few sectors. A more logical approach is to decide on your investment allocation and style and then find funds that have outperformed their peers, taken on reasonable risk in achieving their performance, and have moderate fees and expenses.
Investors have access to a wide array of computerized tools to assist them in building and maintaining their mutual fund portfolio. In this issue, we review both Internet sites and software programs that provide extensive mutual fund databases and search tools to help find those funds that meet your needs. Any of the systems reviewed here can help produce a basic list of mutual funds for consideration in your portfolio. But different systems have different features and data sets and, as our comparison reveals, you dont always need to spend top dollar to get a good system.