Wednesday, June 20, 2007

A Simple Mutual Fund Picking Strategy

Beat the Market With Only 15 Minutes of Work Per Year posted at Project Stocks shares a proven technique for beating the market. The original article was in Money Magazine (I could not find an link on the Internet) on page 33 of the May 2007 issue. Briefly, the strategy is to purchase the best performing diversified equity fund (foreign or domestic) for the past year. After one year, sell it and purchase the new best performing diversified equity fund. (Do not include sector funds in this evaluation.) Over the past 10 years, this strategy would have averaged a 20% return (+ 6.3% versus the S&P 500) using Vanguard funds.

This strategy is appealing to me because of its relative simplicity. The strategy makes sense since the overall trend of the stock market will run longer than a single year. The previous year's best performer will likely continue to perform well. While I still primarily invest in individual stocks, I will evaluate this strategy for parts of my portfolio that I want to have less involvement.

The mutual fund references I will use for this system are from Kiplinger and Money Magazine. I will start by identifying funds for consideration and test the system with a small purchase in the next couple months.

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This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC


Adventures In Money Making said...

interesting, but 10 years is too short a period.

why couldn't they go back 20 years?

Super Saver said...

Thanks for your comment.

While 20 years is better, I think that 10 years is reasonable since a bear market occurred during that time. It shows that the strategy works over both up and down markets.

I am more concerned when a system is back tested during a time frame when the market was only rising.