Five Factors for Successful Fund Investing

Short-term performance is a poor indicator of future results--look to these fundamental factors instead

Russel Kinnel 8 February, 2011 | 11:53AM
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Picture this. It’s the first Sunday of the season. Chelsea is at home to Man City. From the kick-off, City pump a long ball into Chelsea's penalty area; Wright-Phillips nips in between Terry and Cech and, in a flash, it’s 1-0 to City. Your friend turns round to you and says “Chelsea is just rubbish--they’ve no chance of winning the Premiership.”

You would understandably conclude that your friend doesn't have much of a basis for that conclusion. The game's only two minutes old, so how could one possibly know the outcome of the game, let alone the whole season?

Yet I get the investing equivalent of those comments every single day. Equity investments are meant for the long haul, and you can't judge equity funds by six months' worth of performance when they're designed to get you to your goals 15 years down the road. But every day I hear from investors who think a fund is great because it has a good year-to-date return or maybe two or three good years. I also hear complaints that we have recommended investments that had a bad year or two.

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About Author

Russel Kinnel  is Morningstar's director of fund research. He is also the editor of Morningstar FundInvestor, a monthly newsletter dedicated to helping US investors build winning portfolios.

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