Choose funds: low cost, good returns
build wealth roger ibbotson
Roger Ibbotson

Figure out if you're a stock or fund investor
On every transaction, there is somebody on the other side. Ask yourself: Do you have the edge or does that other person have the edge? If you don't think you have any special knowledge, you should buy broad-based mutual or index funds.
-- Roger Ibbotson, Yale University finance professor and chairman and CIO of Zebra Capital Management

Make sure you're paying for skill ...
People overestimate the contribution of talent to any individual manager's performance. If you want to invest with an active manager, you need to figure out if his or her performance is actually the result of skill.

One way to do that is through a measure called "active share," which shows how different a fund's holdings are from those of its benchmark. You don't want to pay high fees for active fund managers if they're really just closet indexers.
-- Michael Mauboussin, Columbia Business School finance professor and author of The Success Equation

... Or save your dough and just buy ETFs
The only reason to invest in actively managed funds today is because the manager has a long record of beating a benchmark, net of fees. Unfortunately that removes most active funds from consideration. Exchange-traded funds have low turnover and low tax exposure, which helps diminish costs.

Some broad-based ETFs come with expense ratios as low as 0.05%. First identify the asset class you need exposure to. Then adhere to a strict investment allocation strategy.
-- Tom Lydon, editor of ETFtrends.com

Best tool: Learn how your fund differs from index funds using Morningstar.com's X-Ray.

Related: The Money 70: Best mutual funds and ETFs


Send a letter to the editor about this gallery to money_letters@moneymail.com.
  @Money - Last updated June 25 2013 10:16 AM ET
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