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Money’s Ultimate Mutual Fund Guide 2006

Released with the February 2006 issue of Money Magazine was Money’s Ultimate Mutual Fund Guide of 2006, which is also available online [3]. Included in the Mutual Fund Guide were Exchange Traded Funds (listing also available online [4]), 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.