U.S. Markets open in 1 hr 46 mins

IBD's Advice On Mutual Funds: Don't Trade; Hold For Long Run

IBD brims with stock charts and articles about individual stocks. You'll find a similar focus on stocks at Investors.com and in IBD's books and seminars.

But that doesn't mean IBD thinks you should give the cold shoulder completely to mutual funds.

It's just a fact that funds are an important part of most growing nest eggs. Plus, studying what funds are doing can help you understand stocks better.

So it's worth remembering to check out IBD's Mutual Funds & ETFs section, which today starts on Page A6. Whether you're looking for a mutual fund to buy, or just want to see if funds like the stocks or sectors that you like, you'll find plenty of helpful material in this section.

The section features useful charts, such as ones that list leading mutual funds or those funds' top buys and top sells. You'll also often see a profile of a mutual fund that's been performing well, with comments from fund managers who explain why they're doing what they're doing.

A profile in last Wednesday's IBD looked at MFS Growth Fund . The story noted that the fund added recently to its positions in several stocks that are familiar to regular readers of IBD: LinkedIn (LNKD), Celgene (CELG) and Visa (V).

How To Make Money In Funds In addition to checking out the Mutual Funds & ETFs section, consider reading (or rereading) the chapter titled "How You Could Make Your Million Owning Mutual Funds" in "," the best-seller by William J. O'Neil, IBD's founder and chairman.

A key point of that chapter is the holding period for a mutual fund generally should be much longer than what an IBD-style investor would have for an individual stock.

"The first thing to understand is that the big money in mutual funds is made by owning them through several business cycles," O'Neil says in his book. "This means 10, 15, 20 or 25 years or longer. Sitting tight for that long requires enormous patience and confidence.

He argues that the most common mistake made by mutual fund investors is failing to hold on for at least 10 to 15 years. They sell out during bad markets, become impatient or lose confidence too soon.

Another problem is picking a fund primarily on an impressive performance in the past year.

"Typical investors in mutual funds tend to buy the best-performing fund after it's had a big year," O'Neil wrote. "What they don't realize is that history virtually dictates that in the next year or two, that fund will probably show much slower results.

He suggests looking for growth funds that have performed well in the last three to five years. IBD provides fund ratings based on the prior 36 months, using a scale of A+ to E.

The Best Time To Buy A Fund Timing is also different with mutual funds. While IBD-style investors try to stay in sync with the general market when buying stocks, any time is the best time to invest in a mutual fund.

O'Neil says: "You should focus on getting started and becoming regular and relentless about building capital that will compound over the years.

Set up regular buys by taking advantage of automatic withholdings from your paycheck.