by Erik Van Tongerloo

Created on: March 17, 2006   Last Updated: October 21, 2009

Mutual funds are a popular investment and you want to buy these which reach the highest return. This is not always a good idea; mutual funds are long term investments and there is no mutual fund which reaches year after year the highest return. Mutual funds with the highest returns will also reach in some years great losses. Every bank tries to offer the best mutual funds for every type of investor but there are many differences in risk profile and investment strategy.

You can read returns in newspapers, Internet sites and it is maybe useful to use the Morningstar rating for an analysis of different mutual funds. Morningstar publishes ratings which have proven to be valuable if you want to compare different mutual funds. It has no sense to select "all" and compare the returns of all mutual funds which they have analyzed. Mutual funds have different risk profiles and you will likely find higher returns or greater losses with mutual funds which have a high risk profile.

The Morningstar rates are useful if you compare mutual funds with the same investment strategy or in the same sector. You can find returns within a short term, for example three months but it is also possible to compare rates in a time span of ten years. Mutual funds are long term investments and it is wise to compare returns of 3, 5 and 10 years. You have to know the returns are results of the past and it is no security for success in the future.

The Morningstar rating is based on a mathematic formula and you need to be careful with these rates. These rates are not always a useful tool if you want to buy mutual funds. There is more research necessary. It is perfect possible mutual funds have a 5 star rating but the perspective for the future can be bad. It is possible the fund manager is changed or the strategy of the fund is changed. This can influence the performance of the fund but you can't find these details in the Morningstar rating.

A guide for the best mutual funds shows how you have to select the best mutual funds for you. The investor needs to determinate his/her risk profile and selects mutual funds within this investment strategy. The easiest way is a strategy fund where the fund manager invests according the risk profile of the investor, for example a balanced strategy mutual fund is a fund where 50% is invested in bonds and 50% in shares.

Every bank offers these kinds of mutual funds and you can best compare the returns of different banks. You will notice differences and the Morningstar

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