The secret to "automatic" profits
Most mutual-fund investors dream of beating the market. The problem is, although a fund might beat the market for a while, performance tends to
revert back to average over the 5-, 10-, or 20-year haul you may face. One solution: Buy index funds. Index funds are mutual funds that resemble the composition of a specific
market index, like the S&P 500 Index.
Index funds can save you time. And yes, while the market will rise and fall, you can be fairly certain that your index fund will provide you with returns
close to the benchmark index. No stock-picking genius is required to pick a portfolio of index funds... but there’s ONE SECRET...
You must choose index funds with the lowest possible expenses. So we did the work for you. We sorted through 125 stock and bond funds. We eliminated any with sales commissions, 12b-1 fees and expense ratios that were above their category median. All you have to do is use this
chart to set-it-and-forget-it.
When we analyzed owning many funds – versus owning a few funds — we found that the returns of funds began to converge return around the addition of a fifth or sixth fund. In other words, buying an eight, ninth, and tenth fund does NOT change your returns – never mind improving them.
You can accomplish most of your long-term goals with fewer than eight funds. What should you do if you own too many funds? That’s easy. The simple way to prune funds is in Consumer Reports Money Adviser.
