Personal finance advisor

“Clunkers”  are usually cars which are gas guzzlers and are old and rickety which provide very low fuel efficiency and make it very evident that its time to send them to the warehouse! The senate in Boston extended the cash for clunkers program as a result of which more money was made available for people who wanted to upgrade their “clunker” vehicles for the faster better looking ones.

This is where we draw parallels between car clunkers and your mutual funds. Can your mutual funds also be clunkers? And if so how do you identify and rectify them? Its also not that simple to identity clunker funds as the rules for mutual funds are not well defined compared to the ones regarding trade ins. So the easiest and the most common sense approach would be to relate your clunker cars to your mutual funds.

The main job your funds have is to keep up with their financial benchmark and if they are not fulfilling that basic requirement its time to revaluate the performance of your funds and turn them in as clunkers. One simple way to evaluate the performance is to see if it has fallen from its benchmark during the fall in the markets and has also failed to show any growth even as markets have risen. If that’s the case it’s definitely time to go back to the drawing board.

Another problem your funds can face is a constant change in the managers. Usually good funds don’t need too many changes and huge turnovers in your financial strategy by a changed manager can seriously hamper developments in your mutual funds. A very obvious method is to go back to assessing why you bought your funds and if they are achieving their purpose. If they are then the funds are right on track.

Recently some funds despite facing massive losses and not earning much, forced the shareholders to pay large tax bills. And these payments can make all further gains for years to come void. The best policy in these cases will be to avoid them when it comes to taxable accounts.

A standard trend that has been noted is that the companies with big brand and several large multinational companies do not make their funds their primary focus. These firms  program their funds for mediocrity so if you want to deliver superior investment results then look for an investment company that gives mutual funds more importance and most importantly ensure your funds are in safe hands.

Tags: clunkers, good funds, Mutual Funds