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New Year's Mutual Fund Resolutions

- Alan Lavine and Gail Liberman

It may be a bit early to plan for the new year, but given last year's investment performance, an early start may be necessary.Here are some suggested New Year's resolutions for investing in mutual funds.

  • When shopping for a fund, compare the fund's year-by-year returns to those of similar funds. Check the fund's expenses and determine how long the manager has been at the fund's helm.

  • Invest regularly for the long term.

  • Stay well-diversified in stocks, bonds and cash. Don't be greedy.

  • Consider owning real estate and gold funds as an inflation hedge. But keep no more than 5 percent of your holdings in these funds.

  • Look at your mutual fund holdings at least every three months.

  • Avoid sector funds, which invest in just one industry.They are risky.

  • If you are speculating on high-flying stock funds, subscribe to a market timing newsletter. You want to be consistent when moving in and out of funds.

  • If your fund changes managers, monitor the fund to see if it does as well as similar funds. Give it some time.

  • Consider selling your fund if it is badly underperforming similar funds over at least three years.

  • Be aware that growth funds and value funds take turns outperforming each other about every two to three years. So if you have a growth stock fund that has performed well in the past, stick with it.

  • Typically avoid new funds until they have a track record. Possible exception: If a manager has a great track record running another fund.

  • Keep your investment costs to a minimum. Stick with no-load funds with low expenses. If you hire a financial advisor, make sure you get a lot of services for your fees.

  • Keep your taxes to a minimum. Keep tax-efficient stock funds and tax-free bond funds in your taxable accounts. Keep government and corporate bond funds in your tax-deferred retirement savings accounts. Keep high-turnover funds that generate a lot of capital gains in your retirement savings accounts.

  • Consult with a financial planner or attorney about your investments as part of a tax and estate plan.


Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books).

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