Mutual Fund company suggest to stay longer. Mostly the return for 1-3 year is much better than keeping for longer? Any suggestion
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what is the reason that mutual fund companies want our money invested in mutual fund for longer time?
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Mutual Fund company suggest to stay longer. Mostly the return for 1-3 year is much better than keeping for longer? Any suggestion
Paul 3:57 pm on February 9, 2010 Permalink
MVD34 is correct but I would like to add the following;
One of the biggest advantages to owning Mutual Funds is the ability to easily re-invest dividends, capital gains and interest, thus buying more shares.
One of the biggest mistakes a Mutual Fund investor can make is selling when the price of the fund drops. If you are re-investing, doing so as the price drops means you get more shares for less money.
Mutual Funds are best considered a long term holding, as that is when the potential for gains is best realized. Mutual Fund companies and firms that do analysis on them (Morningstar is the largest information provider on MF’s) always show total return graphs based on the "Growth of $10,000".
An illustration of the power of re-investing dividends, interest and capital gains is the historical performance of one of the oldest MF’s in existence, American Funds, Investment Company of America (AIVSX). The fund was introduced in January, 1934. A $10,000 investment made on the day it was introduced, with no further investment made but constantly re-investing dividends and capital gains would have a balance of almost $47 million today.
https://www.americanfunds.com/pdf/mfgear-904_icaa.pdf
(see page 4)
MVD34 3:57 pm on February 9, 2010 Permalink
I think you are missing some important pieces of Information.
Historical returns are NOT indicators of future returns. Five to ten years ago the 5-10 year returns looked much better than the 1-3 year returns.
The time you stay invested in a fund should be based upon the purpose (ultimate use) of the money and the investment strategy, not the historical returns of the fund or the wishes of the management company.
jeff410 3:57 pm on February 9, 2010 Permalink
It causes the fund to have to trade more as investors pull their money in and out. More trading increases the funds expenses and that lowers returns to investors. It also increases taxes for other investors as the trading increases short term capital gains, which are distributed to fund shareholders.