If you're seeking a few good mutual funds and have set your
sights on a few of last year's hottest properties, look before
you leap. In many cases, last year's top performers will be
funds of similar style and market sector, which means they'll
probably all move in the same direction--not bad if that direction
continues to be up, but no fun if things go the other way. That old
saying, "Past performance is not an indication of future
returns," is especially meaningful here, as the performance of
investments over time shows a regression toward the mean. In other
words, investments that show far superior performance will tend to
cool off while less-than-stellar funds may pick up the pace over
time. Worse yet, a hot fund could cool off just as you're
getting into it.
Consider looking for fund managers with good long-term track
records whose funds are out of favor (and therefore aren't
winning any popularity contests). By selecting funds that are out
of sync with the current best and brightest, you'll have the
chance to get in early.