Mutual Fund Site

Big Wealth? Low risk? With a mutual fund of all things? How realistic is such a statement?

Realistically? Well, a doubling your income with growth funds is very likely. In fact, there are some very reliable growth funds that offer tremendous opportunities for investors to double their assets. Maybe not in a single year, but think about this for a second… if you could double your asset base in 4 years and every 4 years thereafter, if you invest $10,000 today that same ten thousand would be worth over sixty grand in a decade. And that is a relatively conservative rate of return. More importantly, that’s a very low risk investment overall.

Without naming names, the fund in this particular example performs at just 20% per year. If you use 2009 as a benchmark, this type of return is rather is low (the S&P 500 returned better than 20% for the entire year). A more realistic return would be greater.

Can a fund return 20% over a 4-year period? It is unlikely that a pure growth fund can achieve such a return, particularly if you interject with negative annual returns like those seen in 2008. But that does not negate the fact that over a long-term period, growth funds will provide decent income through dividend payments as well as decent opportunity for growth.

A proper investment management strategy might see assets move from equities into income assets after periods of steady, aggressive growth (and 20% or greater for two or three consecutive periods would certain qualify as steady, aggressive growth). Will an income fund dilute the growth and harm a decade-long goal of reaching $60,000 on an initial $10,000 investment? Not at all.

If investment management takes priority in your investment plan and you monitor that investment plan regularly (i.e. quarterly), then if you invest 10,000 today, reaching sixty in ten years is not only highly achievable or even likely, but a lot easier than most people would think. And best yet is that achieving such a return would involve extremely low risk mutual funds.

To recap how such an investment strategy might look, consider the time of the market. Now might be a good time to invest 10,000 into a growth fund, even after last year’s phenomenal returns. A good quality large-cap growth fund would even do the trick (achieving below average risk for high returns). Sit on the fund as economic figures released every week and month become increasingly positive over the next three to four years. Enjoy 20% returns or more during that period, then shift into an high yield investment fund. By then, rates will have increased (even government bonds would not be such a terrible place to invest). As markets continue to overheat, sit tight until they correct by 25-30% or more, then get back into the growth funds that helped create the wealth in the first place as economic news becomes increasingly bleak.

While this type of strategic asset allocation program has been oversimplified for the purpose of the text, it should be clear how easily it can be implemented, even by the novice investor. Growth funds need not be something that people “time” perfectly (the same is true for income funds). However, some strategic asset allocation is not all that difficult to implement, even if some double-digit years are missed in the interim.