"Eyes on your own paper! Do your own work!"
These commands from school haven't left me, and pursuant to preserving my honor, I long relied on myself and only myself when it came to investing and managing my money. After all, despite what you hear from folks who are paid to market mutual funds and retirement accounts, you are the best person to manage your money, if you have the time and interest to do so.
The easiest way to do this is to save vigilantly and invest in broad-market index funds. Such funds have, over long periods, outperformed three-quarters of all actively-managed stock mutual funds.
But you can do better than an index fund if you're patient, disciplined, and willing to do a little extra effort ... although it might not have to be that much extra effort.
Go ahead and cheat
While most of the more than 7,000 mutual funds out there fail to meet expectations, there are a select few with enviable track records. These superior funds usually have:
- Impressive long-term track returns.
- Low annual expense ratios.
- No loads or additional marketing fees.
- Talented, long-tenured managers.
When you find a top-notch mutual fund, sneak a peek over the manager's shoulder. Don't keep your eyes on your own paper -- check out what he or she has been buying lately, and read recent shareholder letters and updates to find out why. Best of all, if you like what you see, become a shareholder and let that smart manager work for you!
After all, what's smarter than putting the world's best investment talent to work for you?
Funds worth tracking
Here's one example of an impressive fund: The Bridgeway Aggressive Investors 2 (BRAIX) fund has a five-year average annual return of 20%. It sports no load, no yield, and a reasonable expense ratio of 1.22%.
Its recent top holdings included Research In Motion (Nasdaq: RIMM ) , Monsanto (NYSE: MON ) , Sigma Designs (Nasdaq: SIGM ) , and Potash (NYSE: POT ) . Its lead manager, John Montgomery, is an MIT-educated engineer who also studied philosophy; he has a wide background -- along with some obvious skill in stock-picking.
Montgomery -- who happened to stop by Fool headquarters today -- is also a level-headed guy with a commitment to charity and to doing right by his shareholders. That's just a great set of traits to have in an employee.
Another example of a great fund is the Janus Contrarian (JSVAX) fund, which has a five-year average annual return of 25%. Recent top holdings there include JCPenney (NYSE: JCP ) , Amgen (Nasdaq: AMGN ) , and Weyerhaeuser (NYSE: WY ) . It's run by another talented guy, David Decker, who has an MBA from Duke University and who hunts for "overlooked companies that I believe are poised for a turnaround."
But don't forget to look here
Not sure how to learn more about these talented managers, their funds, or their philosophies? Take advantage of our Motley Fool Champion Funds newsletter.
A 30-day, free guest pass will give you full access to all past issues and more information about all of the superior, low-cost funds we recommend.
Longtime Fool contributor Selena Maranjian owns shares of Amgen. Sigma Designs is a Motley Fool Rule Breakers recommendation. Bridgeway Aggressive Investors 2 is a Champion Funds pick. The Motley Fool's disclosure policy keeps its eyes on its own paper.