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Astute investors look at the long term. The top Funds today may be the fallen angels of tomorrow.

There is often a strong focus on the top performing funds. The media plays it up. The advertisers hype it. The consumers are after a dream of incredible short term gains. But there is real danger in this short term focus.

In hot pursuit of high returns, many consumers buy into funds at the worst possible time. The performance of most funds is cyclical. If you buy in a peak, there is often nowhere to go but down. Unfortunately, that is exactly what many consumers do when they buy today's top performers.

The problem with these top-funds is that they are rarely on top from year to year. The odds of having even one of this year's top-five performers on next year's top-five list are approximately 6%. In fact, if you buy one of this year's top performers, you are just as liekly to find your fund listed with next year's bottom five as top five.

What's more, most of the top-five performers from year to year are specialty funds-resources, precious metals, real estate, or high tech. By no small coincidence, most of the bottom five performers are also specialty funds. This is not surprising because specialty funds sacrifice a major part of one of mutual funds' greatest strengths-diversification.

Funds focusing on individual countries are equally susceptible to volatility because of their limted focus. For example, Japan funds posted fabulous results in 1993, but they had a long way to come up after the sharp declines of the 5 years previous to 1993. Since 1993 they have again been very volatile.

High returns are often accompanied by high levels of volatility. Investors in specialty funds should anticipate a lively ride.

The performance cycles experienced by most mutual funds are exaggerated in specialty or focus funds. With such a narrow focus, the fund managers are not able to diversify with different economic sectors within the fund.

So what is a consumer supposed to do?...Diversify!

Experts agree that specialty funds should only be considered if the investor already has a well diversified portfolio. Further, a particularly aggressive investor should not have more than 20% of their portfolio invested in any one specialty fund.

For long term growth, there are better options available to investors; funds which balance high returns with solid long term growth.

The bottom line on top funds is that they may have a place in many investors' portfolios, but they need to be just one part of a much bigger picture.


		Investment Volatility (Financial Planning) Astute investors look at the long term. The top Funds today may be the fallen angels of tomorrow. There is often a strong focus on the top performing funds. The media plays it up. The advertisers hype it. The consumers are after a dream of incredible short term gains. But there is real danger in this short term focus. In hot pursuit of high returns, many consumers buy into funds at the worst possible time. The performance of most funds is cyclical. If you buy in a peak, there is often nowhere to go but down. Unfortunately, that is exactly what many consumers do when they buy today's top performers. The problem with these top-funds is that they are rarely on top from year to year. The odds of having even one of this year's top-five performers on next year's top-five list are approximately 6%. In fact, if you buy one of this year's top performers, you are just as liekly to find your fund listed with next year's bottom five as top five. What's more, most of the top-five performers from year to year are specialty funds-resources, precious metals, real estate, or high tech. By no small coincidence, most of the bottom five performers are also specialty funds. This is not surprising because specialty funds sacrifice a major part of one of mutual funds' greatest strengths-diversification. Funds focusing on individual countries are equally susceptible to volatility because of their limted focus. For example, Japan funds posted fabulous results in 1993, but they had a long way to come up after the sharp declines of the 5 years previous to 1993. Since 1993 they have again been very volatile. High returns are often accompanied by high levels of volatility. Investors in specialty funds should anticipate a lively ride. The performance cycles experienced by most mutual funds are exaggerated in specialty or focus funds. With such a narrow focus, the fund managers are not able to diversify with different economic sectors within the fund. So what is a consumer supposed to do?...Diversify! Experts agree that specialty funds should only be considered if the investor already has a well diversified portfolio. Further, a particularly aggressive investor should not have more than 20% of their portfolio invested in any one specialty fund. For long term growth, there are better options available to investors; funds which balance high returns with solid long term growth. The bottom line on top funds is that they may have a place in many investors' portfolios, but they need to be just one part of a much bigger picture.