what factors matter most in a mutual fund?

[StepRightUp]

Hi guys,

I had the majority of my retirement just transferred to a Vanguard Roth. It's sitting in a target 2040 now as I plan my attack. I have an asset allocation in mind and am ready to select specific funds (mostly index funds, btw).

What do you value most when comparing funds?

Also, since these exist within a Roth, does Turnover Rate matter less since I'm not hit with capital gains taxes?

Many thanks.

[bjl584]

Expense ratios, track record, ample fund history.

[jpg7n16]

First: Personal risk tolerance, personal timeline
Then: Asset allocation, expense ratio, track record
Then: Morningstar rating

I just like to see a good Morningstar rating. Kind of a personal thing. But I'd check all the other things out first.

[thomsoad]

Sounds like you already know your personal risk assessment so here is my criteria from most important to least important:

1) Prospectus - They better be practicing what they preach. If they say that they are an International Stock Fund then they better have at least 95% in International Stocks. Not International Bonds, not International currency, and not the NASDAQ/S&P 500. You will be surprised how many funds do not follow their own descriptions of what the fund is.

2) Performance - 10 year track record against other funds that also follow my first rule listed above

3) Cost - Not how much to buy a single share ... but how much they charge for operating costs.

Also note rules 2 & 3 should be combined to figure out the better fund. Ex: If one fund is outperforming another by 1% on average BUT is charging 2% more for operating expenses; then on average I would rather have the fund that is not perfoming as well. Cuz its costs are less then the % of profit.

[StepRightUp]

Thanks - how much does management tenure influence your decisions? I've read some articles touting it's importance. Is there a minimum tenure you require for your funds?

[GREENBACK]

Thanks - how much does management tenure influence your decisions? I've read some articles touting it's importance. Is there a minimum tenure you require for your funds?

I think you're onto a very good point. The manager of the fund(s) is as important or maybe more important than anything else. A fund can retain it's name but switch to new managers and go down the toilet despite a good track record. Most people wonder what happened.

New managers are a risk and you have no way to know if they'll be able to match the performance of previous managers. May be best to let others find out if the new guys are as good as the former guys

[thomsoad]

Thanks - how much does management tenure influence your decisions? I've read some articles touting it's importance. Is there a minimum tenure you require for your funds?

Good question. Management tenure is important ... BUT ... Not all important. Depends on who got the promotion. If its someone who has been the Managers right wing man and underling for 15 years then im personally not concerned.

If its someone from the outside who ran an entirely different style fund? ... Im outta there.

But it also depends on the stlye of the fund. I would be much quicker to pull the trigger on an actively managed fund then an index fund.

[StepRightUp]

That's a good point, Thom, about checking to see where a "new" manager was before. Most of the funds I am investigating at present are index funds so the tenure is mattering less.

For the few actively managed funds I'm looking at, I'm seeking a minimum tenure of 6 years. The question I wrestle with is what to do about a "good" fund (based on other above criteria) that has a tenure of only 3 years. I think I would still pass.

[thomsoad]

That's a good point, Thom, about checking to see where a "new" manager was before. Most of the funds I am investigating at present are index funds so the tenure is mattering less.

For the few actively managed funds I'm looking at, I'm seeking a minimum tenure of 6 years. The question I wrestle with is what to do about a "good" fund (based on other above criteria) that has a tenure of only 3 years. I think I would still pass.

For an actively managed fund with only 3 year tenure i would look closely into who the fund manager is. Not necessarily a deal killer ... but consistancy to prior managers investing strategies needs to be in place.