Double Your Money With Funds

Finding solid, growing companies isn't rocket science. Terrific companies are all around you, and every now and then, they'll trade at reasonably attractive prices.

Even in unexciting industries such as retail or beverages, some stocks can perform phenomenally well. Consider Chico's FAS, for example, which has returned an average of 48% annually during the past decade -- enough to turn $5,000 into nearly $250,000. Drink maker Hansen Natural returned an average of 74% each year over that same period. These are, admittedly, extreme examples, and relatively few people were aware of these firms a decade ago.

You don't have to find formerly small, esoteric companies to do well, though. Apple, for example, has increased at an average annual rate of 38% over the past decade. But if you're not confident in your stock-picking abilities, you don't have to go beyond your comfort zone to find great investments.

Consider funds
You'll find more than 7,000 mutual funds out there, and yes, many of them stink.

But there are also plenty of top-notch funds with smart managers, reasonable fees, and solid track records. Don't think of opting for mutual funds as any kind of capitulation. I've recently been moving big chunks of my own nest egg into mutual funds, and it's not because I'm throwing in the towel on my hopes for high returns. It's more a matter of realizing there are people out there who can make my money grow faster than I can on my own.

In fact, they can double your money just as effectively as many top stocks. Consider the 10-year average annual return of these mutual funds and some of their recent top holdings:

Fund

10-Year
Annualized Return

Recent Holding:

CGM Realty (CGMRX)

19.7%

Annaly Capital Management (NYSE:NLY)

Bridgeway Ultra-Small Company (BRUSX)

18.9%

Bolt Technology

T. Rowe Price Media & Telecommunications (PRMTX)

17.8%

Amazon.com (NASDAQ:AMZN)

Calamos Growth (CVGRX)

16.3%

Garmin (NASDAQ:GRMN)

Julius Baer International Equity (BJBIX)

16.2%

Novartis

Fidelity Select Brokerage (FSLBX)

13.7%

State Street (NYSE:STT)

Vanguard Health Care (VGHCX)

14.0%

McKesson (NYSE:MCK)

Legg Mason Partners Aggressive Growth (SHRAX)

11.6%

SanDisk (NASDAQ:SNDK)

Data from Morningstar.

See? Some funds out there do boast strong long-term returns. All it takes is an average annual return of 14.9% to double your money in five years, and 12.3% to double it in six.

Should you snap up shares of the above funds? No -- at least, not just because they're in that table. For one thing, some are closed to new investors. You should also research any fund before investing. Check to see how steep its fees are. Read up on the managers to make sure they've been in place for at least a few years, and that you like their investing philosophy and approach. Ideally, they should have a significant stake in the fund themselves. Beware of sector funds with great records, too -- an energy-oriented fund may do well in one decade, only to stagnate in another.

Choose carefully
If you'd like to jump-start your research, let us help you. We'd love to introduce you to some market-beating funds with great managers, low fees, and outstanding track records via our Motley Fool Champion Funds newsletter. Try it for free (with no obligation and full access to all past issues) and see which funds our analyst Shannon Zimmerman recommends -- and why. (A recent pick sports an average annual return of 38% over the past three years!) Together, his picks have gained an average of 31% versus 17% for their benchmarks. Shannon also maintains three model portfolios, in which he lists appropriate funds for conservative, moderate, and aggressive investors. Check it out right here.

Or learn much more in these articles:

This article was originally published on July 28, 2006. It has been updated.

Longtime Fool contributor Selena Maranjian doesn't own shares of any company mentioned in this article. Amazon and Garmin are Stock Advisor recommendations. Annaly Capital Management is a Motley Fool Income Investor recommendation. CGM Realty is a Champion Funds recommendation. The Motley Fool is Fools writing for Fools.


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