You’ve heard of the “smart money.” Well, there’s a phenomenon that can be called the “dumb money.” It seems especially pronounced among mutual fund investors, who are a little too fond of putting their money on automatic pilot.

Investing in mutual funds is an easy way to diversify your portfolio and tap into the stock market. But you need to do your homework, and stick to a few basic guidelines.

Some of the main advantages mutual funds offer are professional management, diversification and a low barrier to entry. However, with the wide variety of mutual funds currently available, finding the best performing mutual funds can be a major challenge.

Moreover, today’s winners can quickly find themselves on the bottom of the pile tomorrow.

Here are three tips that will help improve your odds of picking the best performing mutual funds for the long haul.

• Fees and performance are related: According to a recent study from Morningstar, fees are a good indicator of the best performing mutual funds, but not in the way you might expect.
  
  According to Morningstar research, lower-expense funds consistently outperformed higher-expense funds, and fees turned out to be a better barometer of future returns than Morningstar’s own star rating.
  
  If there’s anything in the world of mutual funds that you can take to the bank, it’s that expense ratios help you make a smarter decision. In every single time period and data point tested by Morningstar, low-cost funds beat high-cost funds. That seems counterintuitive, but it’s true.

• The best performing mutual funds stick to their mandate: You’ll want to look at the fund’s history to ensure that its investments match up well with its objectives. Funds that wander off the mark are riskier and can skew your portfolio diversification. Many fund managers run their respective funds with short-term goals in mind. If you don’t regularly monitor your fund and change course when warranted, you could be left with a poor investment.
  
  For example, if you are investing in a health care mutual fund and see that they have held large positions in Facebook parent Meta Platforms (NSDQ: META) and Apple (NSDQ: AAPL), you should probably stay away because you have little indication as to what they’ll invest in going forward.

• Consider exchange-traded funds: Unlike traditional mutual funds, exchange-traded funds (ETFs) are not actively managed. Instead, they track indexes, commodities or other investments. They trade on stock exchanges, just like stocks, so you can buy and sell them, as well as sell them short, through your broker. That’s different from units of a mutual fund, which are priced at the end of each trading day.
  
  For example, a popular ETF in the U.S. is the SPDR S&P 500 ETF (SPY). The fund aims to duplicate the performance and yield of the S&P 500 index, which consists of the 500 largest companies in the U.S. by market cap, minus fees and expenses. Its expense ratio is just 0.09%.
  
  A major advantage that ETFs hold over mutual funds is significantly lower fees, because you aren’t paying for professional management to guide the fund.
  
  This adds up to a substantial savings. According to Morningstar figures published by the Financial Industry Regulatory Authority (FINRA), the average total operating expenses of U.S. large-cap stock mutual funds came in at 1.31% of assets, while comparable ETFs averaged just 0.47%.

Read This Story: Crypto Bulls Unleashed: SEC Approval of Bitcoin ETFs Sparks Frenzy

Editor’s Note: The cryptocurrency market is on fire, with blue-chip crypto Bitcoin (BTC) surpassing $72,000 this week.

We’re currently witnessing a crypto bull market with ferocious momentum, a trend triggered by the SEC’s approval in January of spot Bitcoin ETFs. These newly approved ETFs are reporting a massive inflow of capital.

Every portfolio should have exposure to cryptocurrency. However, you need to be informed, to make the right choices at the right time.

Make the right move and you could reap huge gains in a short amount of time. Make the wrong move, and you could lose your shirt.

The good news is, in our coverage of the crypto market, we separate fact from myth, the wheat from the chaff. Start receiving our FREE e-letter, Crypto Investing Daily. Click here now!

John Persinos is the editorial director of Investing Daily.

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