3 Reasons Why Your Mutual Fund Returns Will Always Stink

By David C Lewis, RFA

Getting a better than average mutual fund return might seem like an oxymoron to some people. This is because most actively managed funds have pretty poor performance. It's no accident either. Government regulations have spurred an industry that has become increasingly inefficient, and as a result, has shown investors little more than inflation-matching returns.

You can try to get better returns from your mutual fund, however, don't expect these products to be a silver bullet for your retirement.

The first step in boosting the returns on your mutual funds is by ignoring the 1, 5, and 10 year historical returns that are posted by the fund company. Most of the time, these numbers are inflated anyway by showing you the simple average as opposed to the effective yield.

Unless you have a scientific calculator, you're probably not going to get too far.

Another way to make your investments perform better for you may be just to get out of the fund. I know that's not really boosting the return of the fund, but other investments can offer better advantages. By limiting yourself to just mutual funds, you run the risk of limiting yourself to low returns.

The last "tip" on boosting your mutual fund returns is to choose mutual funds that invest in smaller capitalization companies or choose funds that are relatively small in size. A smaller mutual fund would probably be the essential point here. Small funds have more places that they can invest in. It's also easier for a $10 million fund to double in size than it is for a $100 million.

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