Put Mutual Funds to the Five-Point Test

One of the biggest cliches in investing is "Past performance is no indication of future performance."

Well, that oft-repeated platitude isn't necessarily true. Past performance can tell you plenty about what a mutual fund might do in the future -- just not in the way that you think.

Frankly, you don't want to buy a fund that has done exceptionally well in the past year or two. A fund that's up a lot more than the market and its peers might have been taking on too much risk or just happened to be in one of two hot sectors that are about to go cold. ...