Kicking the fund-trading habit

If you are not getting good results, and you are not even having fun, active investing is not for you.

There are people who spent five hours a week researching and tracking mutual funds, without any results.
You would certainly think that working hard and smart to pick the best mutual funds should result in better performance. But it rarely works out that way. That is because nearly all the research you can do is backward looking.

With thousands of mutual funds, the ones that have performed well over a short period, will show up at the top of your charts. But their good performance can usually be chalked up to luck. By the time you send the hot fund your money, you are set up for a few years of bad times.

A lot of people who research and track these funds, also buy and sell frequently. That triggers tax implications and opens you up to a whole lot of human error. Plus, actively managed funds charge far more in annual expenses. Those can really eat into the returns you get. So it really is much more effective to invest in the entire U.S. and international stock market using a handful of index funds. You can then forget about your portfolio, other than maybe rebalancing once a year. You save in expenses and taxes - not to mention what you save in stress.

I think lots of people can learn something of this article. It is not because you manage your portfolio actively, that you will earn more.

Kathleen

Source : http://money.cnn.com/2007/11/15/pf/funds/ask_the_mole.moneymag/index.htm?postversion=2007111513