Professional investors got taken to the cleaners by the former head of NASDAQ, hedge fund manager and scam artist Bernie Madoff. They should have known better. But before you point fingers at these supposedly sophisticated investors who lost billions to a cheat, ask yourself this: Do you do even the minimum due diligence before you invest in a fund? (I don’t care who told you about it. Trust no one except yourself.)
Go to the finance.yahoo.com site and look up a mutual fund. Then click on “Profile.” Here, you’ll see most of what you need to know…
• The fees and expenses. You can compare them to the average costs of similar funds for the current year and projected out as far as 10 years.
• The fund manager. You’ll see how long he’s been managing that particular fund and how long he’s been with the fund company.
Then click on “Performance” and look at the information under “Trailing Returns vs. Benchmarks” to find out how the fund did compared to its category and to the S&P 500.
If you spend more than 60 seconds on each of these pages, you’re spending too much time. Just two minutes’ worth of homework could save you a lot of headaches down the road.
If the fund does worse than the S&P, don’t invest. But also don’t invest if it makes the same great annual gains even in those years when the S&P is in negative territory. That’s the big lesson of the Bernie Madoff scandal.