Transcripts

"Of Mutual Interest"- John Waggoner, Mutual Fund Columnist at "USA Today"

SUZANNE PRATT: Tonight's "Of Mutual Interest" commentary has a list of hot funds to avoid. Here's John Waggoner, mutual fund columnist at "USA Today."

JOHN WAGGONER, MUTUAL FUND COLUMNIST, USA TODAY: You can find plenty of information on what mutual funds you should buy. But today, were going to eliminate the positive and accentuate the negative. We're going to tell you what funds not to buy. You can choose among nearly 8,000 funds of all stripes and some of them are just plain silly. Let's start with leveraged funds, which use futures and options to goose their returns. Many leveraged funds promise to give you twice the return on a daily basis as a broad-based index, such as the Standard & Poor's 500. Some new funds even promise triple the gain or loss from the index. Financial pros have lost billions using leverage. Be smarter than the pros and don't mess with it. You don't need currency funds, either, which track movements of the dollar against the yen, the euro and even the Brazilian real. Do you know which direction the New Zealand dollar is going to go? If not, leave these funds alone, too. Now while we're dissing funds with an international flavor, you can safely sidestep the international funds that invest in a single overseas country, particularly an emerging market. Unless you have close ties to India and understand its economy and politics, don't make a financial passage to India. Closer to home, don't invest in a Treasury-only money fund. Interest rates are so low now that many Treasury-only funds yield exactly zero. You can get better yields and government safety from your friendly local bank. Finally, look at funds that have rotten records for a long period of time. Sure, they could get better, but they usually don't. Most people don't need more than six to 10 broadly diversified funds with low expenses. All those other funds do make money, just not for you. I'm John Waggoner.