Money 70: Best mutual funds and ETFs
NEW YORK (Money Magazine)
The Money 70 list of recommended funds includes low-risk plays and aggressive bets. All, though, boast quality management and a consistent strategy.
When it comes to investing, there are few things that work all the time. Stock markets plunge. Even diversification won't always protect you. Yet over time losses can turn into profits, as the recent market rebound shows. Staying the course really does work.
That's the guiding principle of the MONEY 70, our recommended list of mutual and exchange-traded funds. We assembled this list with a focus on consistency, so naturally we include index funds and ETFs -- indexing is the cheapest and most reliable way to earn the returns that the market offers. And in the long run, it's likely to beat the average actively managed fund.
For actively managed funds to get on the list, they must meet strict criteria: low costs, experienced managers who look out for their shareholders, and a clear investing strategy. What you won't find are funds that happened to rocket to the top of the charts last year. We do, however, look for long-term success. Nine out of 10 MONEY 70 active funds beat their category average over the past five years.
How funds made the cut
In choosing the mutual funds and ETFs to recommend, MONEY assesses funds by four criteria:
Fees: All our funds must charge less than the average for their category. Fees take a big bite out of your returns, so low expense ratios are the best predictor of better performance, since you keep more of your gains.
Stewardship: It's important to know that fund managers put the interest of shareholders ahead of their own. We rely on Morningstar's stewardship grades, which rate funds based on their corporate culture and regulatory history.
Experience: Good long-term returns don't mean much if the manager responsible for them is no longer around. So with actively managed funds, we look for managers with long tenures and a consistent investment strategy.
Performance: Initially, to earn a spot on our list, a fund must have outpaced at least 50% of its competitors in the same category over the past five years. However, we won't automatically kick it off if returns lag later on.