Picking good mutual funds

- Alan Lavine and Gail Liberman

After you check on past performance and fees, you have to narrow your choices.

There are two key ingredients to consider.

First, look at how long a portfolio manager has been running the fund. The average length of tenure of U.S. stock fund managers is 5.5 years. However, the managers of funds that did better than 50 percent of their peers have been running a fund for an average of 8.8 years over the past five years.

Avoid funds with managers who have been only a few years at the helm. Stick with fund managers with consistent returns year-by-year over several years. You want a manager that loses less on the down side than his or her peers.

Also find out if a fund manager has his or her own money invested in the fund. "High ownership by fund managers correlates with higher returns, lower expenses and longer manager tenure," according to Morningstar Inc., Chicago. Based on Morningstar research, there are 150 fund managers that have $1 million or more of their own money in the fund that run. Some funds to consider are the Brandywine Fund, Selected American Shares, Longleaf Fund and Royce Total Return. All these funds have good long-term track records that have withstood the test of time.

Be advised, well-run funds still can lose money. So be sure to own bonds and cash. Also, invest for the long term. Over the short-haul, you still could lose plenty of money--even in these well-run mutual funds.

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Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.