Friday, November 8, 2013

Alert! The 5 Worst Mutual Funds Money Can Buy

When it comes to
money & markets, making investments is an important part of that economic system. It is vital when entering into the world of investments to learn how to choose them wisely, not only by learning what good investments are, but also learning what are very poor and dangerous investments. 

While it’s easy to rely on investment advisors to provide advice and help manage your portfolios, it’s critical to perform your own due diligence. Bad financial advice is generally chalked up to two specific reasons – self-interest and the advisor’s lack of performing due diligence. Both kinds of poor financial advice comes with its own consequences in the short term, but down the road, they will both result in poor performance or loss of money.

While mutual funds should be part of every investor’s portfolio, not all are created equally. Below is a list of 5 of the worst mutual funds you can invest in this year.

1. The Fairholme Fund

Fund manager Bruce Berkowitz endangered this fund by taking a bet on the recovery of Bank of America, St. Jones, CitiGroup and AIG. Unfortunately the bet was the wrong one to make, as now this fund has lost more than 35% year to date vs a loss 7% for the S&P 500. Close to $10 billion have poured out of this fund over the past year, proving that past performance does not predict future performance.

2. Franklin Gold and Precious Metals Fund

With gold being in the free fall that it is in, and the slim prospects for inflation on the horizon, it's no wonder that this fund is one of the worst investments that can be made. The Franklin Gold and Precious Metals Fund has lost over half of what it is worth since the beginning of the year, with a YTD return of -53%.

3. Diamond Hill Long-Short (DHCFX)

This fund has an equity with 1.00% of the load and a 2.56% ratio, so no matter what the market does, each investor will lose 3.56% of their principal. It has also trailed the S&P 500 and underperformed it by over 16% over the last 5 years, which is a big deal when over 3% of your investment is going just to pay for the fund.

4. Federated Prudent Bear Fund

One easy way to determine how a bear fund is doing is to look at the market: if the market is doing poorly, you can rest assured that the bear fund is doing poorly. And this one is no exception. With a YTD return of -13%, and the average return for the past 3 years being -16%, this is not a wise fund to invest your money into.

5. Fidelity Magellan

Despite how poorly this fund has consistently performed, many investors continue to stick with it. Trailing the S&P 500 over the past 1 year through 15 year rolling periods, and with $17 billion in assets under management, this fund has done so many things wrong that there is a wonder what a loyal following it continually has.

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