We all make trade-offs in our lives. Should we put $1,000 into repairing that old clunker or trade it in for a newer model? Put a few more dollars to our retirement accounts or to our kids' college funds?
When viewed from afar, it sometimes seems like all we do is make tough choices with no clear-cut answers.
When deciding how to invest your hard-earned cash, the same tough choices apply. Thanks to such great investors as Warren Buffett, Bill Miller, Peter Lynch, and Benjamin Graham, you know the market can be beaten. At the same time, you're smart enough to realize that there's a whole lot of work involved in beating the market. That leads to a thorny dilemma: Do you want to invest the time and effort it takes to beat the market, or would you rather try simply to match the market for a whole lot less work?
Can you do both?
Ideally, you'd be able to get market-beating returns without a whole lot of effort on your part. That's the implied promise of actively managed mutual funds: You hand them your money, and they'll do the hard work of beating the market for you. It's a great concept, and if it worked, it'd be a great trade. The problem: The vast majority of mutual funds fail to beat the market for any significant length of time.
The good news is that not all of them fall behind. In fact, you can identify the ones that have what it takes to wind up on top. They tend to share these key characteristics:
- Low fees.
- No sales loads.
- A solid strategy.
- Low churn.
- Strong management with a proven track record.
A proven formula
Consider a fund with a low 13% annual turnover, a winning value-focused investing strategy, and a lead manager who has been at the helm since 1990. Throw in some ultra-low costs like these:
|
Expense |
Fund-in-Question |
Category |
|---|---|---|
|
Total expense ratio |
0.71% |
1.33% |
|
Max front-end sales load |
0.00% |
5.33% |
|
Max deferred sales load |
0.00% |
2.71% |
... And you have the makings of a true superstar. In fact, this particular fund, a Motley Fool Champion Funds recommendation, has beaten the S&P 500 on a three-, five-, and 10-year annualized basis. Best of all, it's done so while owning significant positions in well-known and respected companies, bought at bargain prices:
|
Company |
Weight |
|---|---|
|
Marathon Oil |
4.02% |
|
Bristol-Myers Squibb |
3.32% |
|
Schering-Plough |
3.29% |
|
Cooper Tire & Rubber |
2.83% |
|
Dell |
2.81% |
|
Abbott Laboratories |
2.71% |
|
Dow Chemical |
2.66% |
Make the right trade
If you want to try to beat the market, you need to decide whether to go it alone or to hire the right professional to do the heavy lifting on your behalf. Actions speak so much louder than words. As this fund's performance shows, when you find a fund with all the right characteristics, it may actually make sense to trade control of your invested cash for more control of your life.
If you'd like to find out the name of the spectacular fund I've profiled here, join us for free with a 30-day trial to Champion Funds (current subscribers can click here to see its review). If you're ready to make that trade to keep more of your time, you can join us today with no obligation to subscribe.
At the time of publication, Fool contributor Chuck Saletta did not own shares of any company mentioned in this article. Dell is an Inside Value and Stock Advisor recommendation. Dow Chemical is an Income Investor recommendation. The Fool has a disclosure policy.
