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How You Could Make Your Million Owning Mutual Funds 399

who is in retirement might want to consider a balanced fund if less volatility
is desired.

Should You Buy Global or International Funds?
These funds might provide some diversification, but limit the percentage of
your total fund investment in this higher-risk sector to 10% or 15%. Inter-
national funds can, after a period of good performance, suffer years of lag-
gard results, and investing in foreign governments creates added risk.
Historically, Europe and Japan have underperformed the U.S. market.

The Size Problem of Large Funds
Asset size is a problem for many funds. If a fund has billions of dollars in
assets, it will be more difficult for the fund manager to buy and sell large
positions in a stock. Thus, the fund will be less flexible in retreating from the
market or in acquiring meaningful positions in smaller, better-performing
stocks. For this reason, I’d avoid most of the largest mutual funds. If you
have one of the larger funds that’s done well over the years, and it is still
doing reasonably well despite having grown large, you should probably sit
tight. Remember, the big money is always made over the long haul. Fidelity
Contrafund, run by Will Danoff, has been the best-managed large fund for
a number of years.

Management Fees and Turnover Rates
Some investors spend a lot of time evaluating a fund’s management fees and
portfolio turnover rates, but in most cases, such nitpicking isn’t necessary.
In my experience, some of the best-performing growth funds have higher
turnover rates. (A portfolio turnover rate is the ratio of the dollar value of
buys and sells during a year to the dollar value of the fund’s total assets.)
Average turnover topped 350% in the Fidelity Magellan Fund during its
three biggest performance years. CGM Capital Development Fund, man-
aged by Ken Heebner, was the top-performing fund from 1989 to 1994. In
two of those years, 1990 and 1991, it had turnover rates of 272% and 226%,
respectively. And Heebner’s superior performance even later in CGM
Focus fund was concentrated in 20 stocks that were actively managed.
You can’t be successful and on top of the market without making any
trades. Good fund managers will sell a stock when they think it’s overvalued,
when they are worried about the overall market or a specific group, or when
they find another, more attractive stock to purchase. That’s what you hire a