The layman thinks that investing in funds is easy. You simply buy the funds with the highest returns. However, this way of thinking is completely wrong.
Funds use investment strategies, meaning certain methods, to select their stocks. And like everything in life, these strategies have a cycle.
What goes up therefore must come down again. For investment strategies, this means that good funds will soon be bad funds.
They might show good historical returns and therefore contain expensive stocks (otherwise the returns wouldn’t have been good), but these returns will likely fall again. For this reason, investment funds are some of the most complex things investors can deal with.
.It’s much easier – and also more profitable – to evaluate stocks on your own. That way, you don’t have to know the strategy of the fund nor rely on misleading returns.
You only have to remember one thing: Never to put all your eggs in one basket.