Tight-Wad Tuesdays – Go Team Go!
Yesterday our team did not make out so good. ..not so good at all. But that didn’t stop our girls from capturing a little bit of team spirit! ~ OK, they were highly encouraged by some of us here in the ‘spirit department’. They did their part to cheer our team!
Similar to the hopes of our team going unfulfilled are the chances the dreams for our daughters may not get fulfilled either. As much as we wish and plan, possibly these girls may not get Cheerleader scholarships to a good school! ~ It is such a cut throat activity some times.
So we have to be prepared to fulfill our scholastic dreams for these girls some other way.
Which brings as to today’s discussion. So far I have told you how to send your kids to college for FREE! I talked about the reasons to start investing in their college educations as early as possible, and why when the markets go bad it isn’t necessarily a bad thing. Next was a discussion for picking some truly noteworthy investments, proven over time to be winners, to help grow these kid’s educational funds to their full potential. But what if you get to this point and you have too many choices? Or hope to pick a winning fund over a sinking fund in the same asset class. What then? We want the best for our kids, right?
If you get to this point it is easy to over or under analyze. Analysis paralysis! Don’t get paralyzed by alternatives (my wife often says about me). Lets not make it too hard at this point. Here are two basic tips on mutual funds to help narrow in on the best of the best; or the best from the worst.
First, in picking a mutual fund in a certain asset category, go for the stars! Morningstar publications rate almost all mutual funds, giving them a 1 to 5 star ranking; just like restaurants. We eat in the best restaurants, right? You can usually find a Morningstar ranking by doing a search with the funds symbols or it should be included in your plan’s literature as well. So look for a mutual fund with the most stars! Ideally we want to pick a mutual fund with at least a 4 or a 5 star ranking.
Don’t get obsessed with the star ranking though. The ranking of the mutual fund actually tells us how well it accomplishes its goals, not the best in growth. For instance, a 5-star fund does exactly what it sets out to do. A 3-star fund doesn’t do it so much. That’s why we pick the studs with the most stars.
But that doesn’t mean a 5-star Bond fund will outperform a 3-star Large-cap Growth fund. It just means that bond fund does a better job at doing what it says it will do. Wouldn’t it be great if kids could earn stars this way?
So pick a fund with the most stars within your target asset class.
Second, what if you find 2 or 3 4-star funds in the same asset class in which to chose? What now? One easy statistic that ties indirectly to your funds growth is the fund’s fees. Fees are usually listed towards the bottom of the fund’s literature. Look for these. In general we want to pick a fund that carries the lowest fees. Never pick a fund with fees that are larger than 1% . Now that may seem like a small amount to spend, 1%, but remember that fee is coming off your earnings. So, if your fund grows 10% one year (that would be nice), after fees it only grew 9% at a 1% cost. On the other hand, if your fund LOST 3% one year, after fees taken out you have now lost 4%. Yikes! So pick the funds with the lowest fees.
One statistic associated with Fees or Cost is the ‘Turnover Ratio”. Turnover ratio has to do with how much trading the fund managers do in order to get you great returns. Just like if you did it yourself, the more the fund trades (buys and sells) the more commissions it has to pay and so the higher are over all costs that we just talked about. So a lower Turnover Ratio is a good key to identifying lower costs.
So, in summary, to make it easy in choosing Mutual Funds, find the 4 asset classes we talked about last week. Then find a great mutual fund in each one of those asset classes. To help us decide which funds are the best we want to pick the one with the most Stars and also one with the lowest costs (fees). Make sense?
Next week, I want to make all of you Millionaires, especially if you are under 30 and have some patience to invest. Its easy! ~ you’ll thank me later!
But for now I have to attend a party! Dylan has been putting together a tea party for Skylar all morning and I have to go. It gets really ugly if I show up late to these things!
PS: I have covered a lot over the last 4 weeks in TWT. If you have any questions at all on the topics or ideas I have discussed please email me via the gravatar and I would be glad to clarify things for you. Slainte!