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The Best Mutual Funds

Mutual funds can be an option if you’re looking for actively managed funds that are low risk and fairly diversified.

When compared to index funds, though, there’s a clear winner.

With mutual funds, you have to pay a higher expense fee. That’s because the fund is actively managed by fund managers. But with index funds, the fees are much lower because those funds track an index like the S&P 500.

Also index funds regularly outperform actively managed funds. After all, fund managers are just humans who have to use their judgement to see what might perform well. That means they’re often susceptible to error.

That’s why we recommend you pick some reliable and historically well-performing index fund (more on this later). But if you want to consider mutual funds, here’s a good place to start.

The Best Mutual Funds Table of Contents:

The 5 Best Mutual Funds

Keep in mind that this isn’t a list of the best mutual funds performing at the very moment that you’re reading this. Rather it’s a list of the mutual funds that fit two criteria for us:

  • Overall performance. This is performance in the long term, over a period of decades.
  • Good banks. The funds come from banking institutions we trust and can rely on.

Also note that all of the information below was written as of early 2020. With that in mind, here are our five favorite actively-managed mutual funds.

Vanguard Wellington Fund Investor Shares (VWELX)

  • Minimum investment: $3,000
  • Expense ratio: 0.25%
  • 1-year return: 7.55%
  • 3-year return: 8.13%
  • 5-year return: 9.90%
  • 10-year return: 9.61%
  • Lifetime return: 8.29%
  • Yield: 1.59%

Started in 1929, the Vanguard Wellington Fund is the bank’s oldest mutual fund and the nation’s oldest balanced fund. It’s a fund that has seen the country’s biggest economic downturns from the Great Depression to the Great Recession—and for good reason.

In terms of asset allocation, the fund is moderately balanced including plenty of dividend-paying stocks as well as high-quality bonds. Overall, it’s a very well-balanced mutual fund designed to lower risk.

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Vanguard Health Care Fund Investor Shares (VGHCX)

  • Minimum investment: $3,000
  • Expense ratio: 0.32%
  • 1-year return: 25.79%
  • 3-year return: 10.41%
  • 5-year return: 9.63%
  • 10-year return: 14.98%
  • Lifetime return: 16.06%
  • Yield: .85%

This is a fantastic mutual fund with domestic and international investments in the healthcare sector. This includes things like medical supply companies, hospitals, and also pharma companies.

It has returned an average 16.06% in annual gains since its inception in 1984 and continues to perform well today. And with a low expense ratio of .32%, you don’t have to worry about being nickel-and-dimed by management fees.

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Fidelity Magellan (FMAGX)

  • Minimum investment: $0
  • Expense ratio: 0.77%
  • 1-year return: 27.67%
  • 3-year return: 16.35%
  • 5-year return: 16.27%
  • 10-year return: 13.93%
  • Lifetime return: 16%
  • Yield: 0.24%

This is a very popular mutual fund with investments in large-growth companies—and for good reason. Throughout the 1980s, famed investor Peter Lynch managed the fund to great success, averaging an annual return of 29.2%.

Since its inception in 1963, this fund has had some solid annual returns—often beating the S&P 500 as an investment (not that it matters too much).

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T. Rowe Price New Horizons Fund (PRNHX)

  • Minimum investment: $2,500
  • Expense ratio: 0.76%
  • 1-year return: 47.98%
  • 3-year return: 26.74%
  • 5-year return: 23.73%
  • 10-year return: 20.88%
  • Lifetime return: 12.30%
  • Yield: 0%

The T. Rowe Price New Horizons Fund is a good fund that focuses on small- and mid-cap growth, investing in small but quickly growing companies. This includes companies that are developing new and innovative technologies as well as other products that are expected to be popular.

One interesting thing to note about New Horizons is that it also includes investments in private companies—those are companies that don’t offer shares to the public (yet). These companies include the note-taking app Evernote.

This fund is currently closed to new investors, but it may reopen in the future.

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Fidelity Select Software & IT Services Fund (FSCSX)

  • Minimum investment: $0
  • Expense ratio: 0.71%
  • 1-year return: 41.70%
  • 3-year return: 26.84%
  • 5-year return: 26.32%
  • 10-year return: 21.56%
  • Lifetime return: 16.70%
  • Yield: 0.74%

This fund invests in some of the biggest tech and software companies out there including Microsoft, Visa, Adobe, and Google. Typically, about 80% of the assets are in tech companies.

And if you’re wondering how this fund has fared throughout the years, have no fear. It’s survived the Tech Bubble Burst of the early 2000s as well as the 1987 stock market crash. Overall, it’s a great fund with high returns that has a proven track record of weathering the worst financial storms.

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How Mutual Funds Work

Think of a mutual fund as a basket. In this basket are many different types of investments (e.g. stocks and bonds).

You and other investors pool your money together to invest in this basket—otherwise known as a portfolio.

That allows you to invest in portfolios you wouldn’t otherwise be able to afford alone. That’s because you’re investing with other people as well.

They’re great because investors can pick a single portfolio that contains many different types of stocks, bonds, and other securities. That’s also known as diversification and lowers your overall risk when investing.

And there are many different types of mutual funds too:

  • Stock funds. These are funds that invest primarily in stocks. Typically, the funds fall into smaller categories named for the size of the organizations they invest in. For example, there are small-, mid-, and large-cap funds.
  • Bond funds. These are funds that invest primarily in bonds. As such, they’re typically seen as safer, lower risk investments.
  • Balanced funds. These are funds that invest in both stocks and bonds. Their goal is to maintain a specific asset allocation between stocks and bonds. For example, there are target-date funds that automatically readjusts your asset allocation as you get closer to retirement age.
  • Index funds. These fund track indexes such as the S&P 500 and the Dow Jones Industrial Average. These are incredibly popular funds due to their consistency and their low expense ratios. After all, they don’t require a fund manager since they just track and index.

REMEMBER: People often refer to actively-managed funds when they talk about mutual funds—even though index funds are technically mutual funds as well.

Mutual funds typically pay out two ways for investors:

  1. Distributions. This is when a mutual fund has an asset that pays dividends such as stocks.
  2. Capital gains. This is when you sell your mutual fund for more than you bought it for.

If you have an actively-managed fund, I wouldn’t bet on it beating the market though. In fact, 66% of large-cap active managers failed to beat the S&P 500.

Does that mean you should avoid getting mutual funds though? Not necessarily.

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How to Choose The Best Mutual Funds

The best mutual funds are index funds.

Why? Simple:

  • Low cost. The expense ratio for index funds is incredibly low. For example, Vanguard’s 500 Index Fund has an expense ratio of just 0.04%.
  • No active manager. Since they just track an index, that means they’re not prone to the mistakes that a human money manager makes.
  • Historically successful. Even when the S&P 500 has a down year, the market always bounces back up. Don’t believe me? There’s more than 100 years of evidence to support this.

Which index funds should you get? Here are a few of the most popular ones out there:

Index or Mutual Funds?

Mutual funds are a relatively low-risk way to start investing for your future. They’re great if you like a hands-off, diversified style of investing.

But investors should be wary of any actively-managed funds. After all, they’re managed by humans and humans are prone to mistakes.

That’s why we suggest you invest in an index fund that tracks an index for you. This takes the guesswork out of investing. It also has a historical track record of success—even in the worst economic disasters of our time.

For more on mutual funds, be sure to check out our article all about mutual funds here.

The Best Mutual Funds is a post from: I Will Teach You To Be Rich.

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Short Term Goals – Everything You Need to Know

Short term goals are critical for job interviews, college and scholarship applications, personal development, and more. Knowing what your short term goals are can set you apart from other candidates. We’ll break down everything you need to know about short term goals. 

Table of Contents:

Let’s get started. 

What are short term goals?

A Short term goal is something you want to accomplish in the near future. This could be this month, this quarter, or in the next 6 months.  Typically any goal with a timeline greater than one year is considered a long term goal. 

Short Term Goal Examples 

Example #1: Health 

“I want to lose 5 pounds in the next 6 weeks”

Example #2: Finances 

“I want to put $500 in my savings account by the end of this quarter”

Example #3: Career

“I want to get a promotion in the next 6 months”

Example #4: Self Development 

“I want to read one book per week for the rest of the year” 

The commonality? Each goal has a short time frame, and the objective is something that could reasonably be done in that time frame. 

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How to Set Short Term Goals 

The key to setting short term goals that you’ll actually accomplish is to use the SMART acronym. SMART Objectives are:

  • Specific
  • Measurable
  • Attainable
  • Relevant
  • Time-oriented

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Checklist for Setting A Short Term Goal 

Specific: Start with the process you want to improve at first. Decide on a specific action step you can take.

  • ✔ What will you achieve?
  • ✔ What does it look like? (What do you see in your mind when you picture yourself working towards your goal?)
  • ✔ What is the action step?

Measurable: How will you know if you’ve reached your goal or not? There are different levels of “healthy” or “financially sound.” Avoid words that may have vague meanings like, “learn” or “feel” since you can’t measure them. Instead, use action verbs like “run,” “save,” or “write.” Then, turn those words into quantifiable benchmarks.

You need to be able to answer the question, “Did I get it done? If not, how much further do I have to go?”

  • ✔ How will you know when it is done?
  • ✔ What are some objective benchmarks you can hit along the way?
  • ✔ Would someone else be able to tell that it’s complete?
  • ✔ Is it quantifiable?

Attainable: My mentor BJ Fogg talks a lot about Tiny Habits — little things that start us on the path to success. The best way to achieve a goal is not to rely on motivation, but instead make it ridiculously easy for your future self to do the right thing. Instead of committing to running 5 days a week, start with one day and move up from there.

  • ✔ Are there available resources to achieve the objective?
  • ✔ Do you need a gym membership, a new bank account, new clothes?
  • ✔ Am I set up to do this even when I don’t have “motivation”?
  • ✔ Are there any time or money constraints that need to be considered? Am I being too ambitious to start out? (Remember you can always be more aggressive with your goal later on.)

Relevant: Ask yourself, in the scheme of all the things you want to try, do you really care about this? Ramit tells a story of going to his cousin’s wedding in India a few years ago, where he saw one of his friends order his food in fluent Hindi.  Pretty impressive. When he got back to NYC, he put “Hindi lessons” on his to-do list,  only to skip over it for MONTHS. The truth is, he really didn’t care enough to try and learn Hindi. It wasn’t important enough. When he acknowledged he wasn’t going to do it and crossed it off the list, it freed up time to focus on doing the things that he really wanted to do. Don’t feel guilty if something isn’t a top priority for you, just acknowledge it so you can focus on the things that are important. 

  • ✔ Why am I doing this?
  • ✔ Is this a priority for me?
  • ✔ Will it compete with other goals in my life?

Time-oriented: Give yourself a deadline to reassess your goal. And put it on the calendar! I like to re-evaluate my goals every 3-months to make sure they are still Attainable and Relevant.

  • ✔ Is there a deadline?
  • ✔ Did I put it on the calendar?
  • ✔ Will I know in 3 months if I’m on the right track?

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Putting the Short Term Goals Checklist into Action: 

EXAMPLE: HEALTH

  • TERRIBLE GOAL: “I want to get fit.”
  • BAD GOAL: “I want to lose 10lbs.”
  • GOOD GOAL: “I want to eat 3 healthy meals per week and go to the gym 2x/week for 15 minutes.”

Notice how we’re focusing on the process at first, and starting off conservative: Anyone can eat just 3 healthy meals in a week. And anyone can go to the gym for 15 minutes. Set yourself up to win.

The next step is to make it easy: on your calendar, set 1 hour on Sundays to buy 3 healthy meals and leave them in your fridge, packed and ready to eat. Also set two 1-hour slots for the gym (leaving time for travel).

Take Your Goals to the Next Level 

You can see how being specific, being realistic, and using systems can help you actually achieve your goals.

I put together a fee guide on how to achieve any goal you set and I want to share it with you now.

If you’re ready to stop making excuses, break out of that rut, and make a major change in your life, this free guide is for you.

Short Term Goals – Everything You Need to Know is a post from: I Will Teach You To Be Rich.