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Are you in the year’s best funds?

By Sheyna Steiner ·
Tuesday, April 14, 2015
Posted: 3 pm ET

Picking the best asset class during a given time period is difficult, especially for amateurs. After all, even professionals struggle to consistently predict the future. That's why many experts recommend that small investors take a broad approach to investing with asset allocation. Asset allocation refers to the systematic distribution of money to several asset classes in order to balance returns with the level of risk the investor can tolerate.

Spreading money to several types of investments lessens the risk of a big loss when one asset class performs poorly. Whenever one investment falls out of favor, another investment generally will pick up the slack in the portfolio.

This list from illustrates how some mutual fund categories excel in a given time period while others fall behind. It listed the five top-performing fund categories and the bottom five categories so far this year, based on data from the investment analysis company Morningstar.

Best funds

Mutual fund category Year-to-date return
Managed futures 5.6%
U.S. small-cap growth 5.8%
India 6.7%
Health care 10.7%
Japan 10.9%

Worst funds

Mutual fund category Year-to-date return
Latin America -8.6%
Equity precious metals -3.9%
Utilities -2.3%
Energy -1.4%
Natural resources -1.4%

Source:, Morningstar. Returns are through March 31, 2015

These types of lists can actually be valuable to investors saving in 401(k) plans, but not necessarily because of the best performing data.

Looking at the best performing categories may actually lead investors astray.

"It is looking at short-term performance, and that is dangerous when an investor is trying to chase short-term performance," says CFP professional Michael Silver, partner at Baron Silver Stevens Financial Advisors in Boca Raton, Florida.

Instead, paying attention to the underperforming asset classes could give you an idea of where you could be investing. "What I often encourage people to do is to first find the worst performing asset classes and start investing a portion of their regular contributions into them," says Robert Laura, president of Synergos Financial Group in Brighton, Michigan.

By dollar-cost averaging into a lagging asset class, investors can acquire more shares than they would get at higher prices, essentially buying while the investment is on sale, provided it's a widely diversified mutual fund.

"All of last year I encouraged people to buy emerging markets in their 401(k) and since then it has done very well. It's a practical application on how you buy low and sell high," Laura says.

What do you think of best and worst investment lists?

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Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.

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