Mutual Funds Performance

It's hard to watch your hard-earned money being extracted from your account via the very high management fees of mutual funds. Some mutual fund companies do charge very high fees, all in the guise of a spectacular track record. The track record comes in the form of charts elaborating the mutual funds' performance. The charts have a tiny disclosure at the bottom that could be summarized in five words -- do not count on this. It actually is true, and this tip is followed by all mutual fund investors who have become incredibly rich over the years.

Studying the performance charts

On a visual plane, cumulative past ETF and performance charts are as hard to interpret as an annotated world match chess game if you do not know anything about the game. Many would just check the latest value to determine (rightly or wrongly) if the fund's performance is below or above the statistical index.

The part of the mutual funds' performance which would genuinely show great management skills (or just a lot of luck) is the relative rate of fund variances versus the valuation of the index benchmark asset. This figure is what ultimately counts.

One mutual fund that is excellent would have a line (cumulative) that increasingly diverges from the benchmark indices. If you look at it, the gap between those two lines must go farther and farther away from each other.

You should know though, that rarely would you find a performance graph with increasingly diverging lines. This is because luck would always be a principal factor, and high trading costs would pull down the performances to appropriate benchmark indices.