Mutual Fund Newsletters - Which one is best for you?

First, you have to know that not all Mutual Fund Newsletters are created equal. Oh sure, we all want the greatest return, but there are a few other considerations that should be reviewed.

Newsletter Return:

Return is pretty straight forward and while it's the most exciting, this should be evaluated last, after you know what type of newsletter is for you in terms of risk exposure, trading frequency, complexity and of course the most important ease of stick-to-it-tiveness. No, it's not a real word, but you know what I mean. If you can't keep up with the recommendations you're heading for trouble.

The Mutual Fund Newsletters can be sorted into three categories: Asset Allocation Newsletters , Mutual Fund Switching, Sector Investing Newsletter and Mutual Fund Market Timing Newsletters . All have their cheerleaders and critics. So, let's breakdown the essential elements of each kind.

Throughout each newsletter service there are some basic questions to be answered:

What is the Performance Return and at what Risk Exposure of the Newsletter?
Was the return achieved with margin (borrowing) or leveraged funds?
What was the Trading Frequency to achieve this performance?
How much time commitment is required on the part of the subscriber?

Performance/Return

The first question is always performance. But notice the compound question above. Be careful of evaluating performance or return without risk exposure. Risk exposure should really be evaluated in two parts.

• What percentages of time were the assets in the market and exposed to market risk?

• What is the Standard Deviation of returns?

Market Risk Exposure:

With buy and hold investing the assets are always in the market and always 100% exposed to market risk. Is a 10% return from an investment always exposed to market risk as desirable as a 10% return from an investment only in the market 65% of the time? Of course it is not. Everyday in the market has reward potential as well as loss potential. The more time assets are exposed to the market, the greater the loss potential and the greater the risk.

Standard Deviation of Returns:

The second component of performance must be Standard Deviation of Return. This is how much the return bounces around the average return. If the average is 10% per year, were some years 50% and some negative 40%? Which came first? Could you survive and continue with the investment if the 40% loss came first, probably not. All performance returns are not equal. (See NFA Special Report: Diversification and Standard Deviation of Return)

Margin Borrowing, Leveraged or Non-Leveraged Mutual Funds.

Often overlooked when evaluating a track record, is the amount of risk associated with borrowing or leverage. Would you buy on margin if you were investing on your own? Remember, returns increased by leverage become bigger losses when the market turns around. Leverage amplifies everything. The conservative investor should usually steer clear of margin debt and use leveraged funds wisely.

Trading Frequency & Time Commitment:

How often does the newsletter trade. Does this fit movement your investment temperament? There are some Timing and Sector Switching newsletters that may transact 5 or more time per week. Do you have the time and wherewithal to invest faithfully like this? Every single trade has some emotional charge connected to it. Each trade has risk.

To be successful newsletter follower you must first find a newsletter that trades within the frequency and time commitment you want and can commit to. One to two trades per year may require a monthly check of the web site. Ten to twelve trades per year may require weekly checks. Two to three trades per month, daily checks. You get the pattern. This is where I see most newsletter subscribers go wrong. The trading frequency must fit into your lifestyle and temperament.

In the Guerrilla Tactics mutual fund trading video and workbook, I teach my students many different levels of trading depending on their desired time commitment. We list most of these strategies at www.guerrillafunds.com . Some take as little as five minutes per week, where others may take ten or fifteen minutes per day. The closer you watch and move with the market allows you to keep a greater amount of gains and minimize you losses. But if you don't have the time or opportunity to check the signals and trade each day, it's better to follow the weekly system.

Subscribe to a few newsletters that fit your trading temperament and frequency. Then evaluate them on ease of use, risk reduction and return. Now, you will also be in the arena to best enhance your overall performance.