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Money’s Ultimate Mutual Fund Guide 2006

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Released with the February 2006 issue of Money Magazine was Money’s Ultimate Mutual Fund Guide of 2006, which is also available online. Included in the Mutual Fund Guide were Exchange Traded Funds (listing also available online), which aren’t technically mutual funds (since they are traded like stocks instead of bought and sold after market close).

Thoughts on the Actively Managed Funds:
I thought it was interesting that all the top actively-managed funds had expense ratios that topped out at 1.3%, with the majority under 1.0%. Is there any reason to buy into the funds that have a much higher expense ratio? A lot of the active funds also had very reasonable minimum investment required of a thousand dollars or so which make them attractive options for young investors such as myself.

Thoughts on the Index Funds:
They’re all Vanguard or Fidelity funds (Vanguard accounts for nine of the twelve listed!) and the highest expense ratio is 0.5% (Vanguard’s Emerging Market Stock Index fund). Every other fund listed has an expense ratio under under 0.2%. This only cements Vanguard’s place as the premier brokerage of index funds though Fidelity, which has come into the limelight recently, is supporting the expert’s opinion that it’s a great number 2. Right now though, with the explosion of China and other nations, if you really want a mutual fund, the right pick right now is an Emerging Market fund or just playing it “safe” with a fund that mirrors the S&P 500. A very large portion of my 401(k) currently sits in the Emerging Markets fund because it’s had tremendous returns.

After I fund my Roth IRA and pad my emergency fund, I think I’m going to open up a Vanguard account and just put my money into one of their index funds. The returns are very healthy and Vanguard has always had an excellent reputation.

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5 Responses to “Money’s Ultimate Mutual Fund Guide 2006”

  1. MyMoneyBlog says:

    Carnival of Investing #10

    Welcome to the 10th edition of the Carnival of Investing. Whew, with hosting my Reverse Carnival last week and then putting this one together, I forgot how much time it takes. Thanks to all the submitters, and then also all previous Carnival hosts! Wit…

  2. JM says:

    You said…

    “A very large portion of my 401(k) currently sits in the Emerging Markets fund because it’s had tremendous returns.”

    I have recently looked at investing more in emerging market, but was concerned due to its recent run up. Are you still bullish on emerging market going forward despite it’s huge success this past year? A lot of what I’ve read suggests no more than 5-10% should be in emerging market due to its volatility…any thoughts on that?

    Also, what do you think of a broader international fund such as Vanguard’s total international (which has a portion in emerging market)?

    BTW, keep up the great work on the blog…I thoroughly enjoy reading it!

  3. jim says:

    JM – I like emerging market funds but I coudlnt’ find a “Vanguard Total International” fund, only Vanguard International Value and International Growth funds, both of which look pretty solid. (Value has a 0.5% expense ratio, Growth a 0.6%) Did you mean those funds?

    I like how they change a 2% redemption fee if you redeem within 2 months, teach you some good habits. :)

  4. JM says:

    This is the one I was referring to

    Vanguard Total International Stock Index Fund

    [Edited to make it a link]

  5. jim says:

    Looks like the total international stock index fund is a mix of the European Stock Index Fund, Pacific Stock Index Fund, and Emerging Markets Stock Index Fund so you’re diversifying across those three funds. This actually sounds pretty good because you get exposure to international markets without putting all your eggs in one particular geographic region (unless you consider 50%+ in Europe too many of your eggs in one basket).

    Emerging markets can be volatile so it may be safer to only have 15% in that, with 30% in the Pacific and 50% in Europe. It looks like January was a particularly good year (1yr updated as of 1/31/06 shows 25.6% whereas 1yr updated as of 12/31/05 shows only 15.57%, look under the Performance tab for the fresher info)

    If you’re serious about this fund, I’d check out the Prospectus.


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