Is it a sound strategy to move my 401(k) money monthly into whichever mutual fund performed the best the preceding month? Why or why not? Would quarterly be a better idea?Or should I just buy an index fund and keep it?
I would recommend selecting an index fund(if available) and possibly anoher fund or two. If an index fund is not an option I would recommend 2-3 growth funds.I would not recommend moving your assets monthly or even quartely. You can't chase last quarters hot performer.I would pick some solid funds and ride them for the long haul making changes when only absolutely necessary.Brian
I would not move funds monthly or quarterly. But there are those who claim that trends tend to continue sometimes for years. For that reason, it is reasonable to attempt to identify those funds that have done consistently well over the last several years and move some funds to them. That is the reason technology and health care sector funds are currently of interest to some.One of the problems with looking over the lists of recent fund performance is that any fund and any fund manager can get lucky once in a while. To profit in the long term, you need consistent performance. So do not be fooled by single quarter or even single year performance figures.Similarly, if one of your mutual funds has not performed for a quarter, I would keep it. But if it has not performed for two years, dump it.