Boston — The bar graphs all look impressive this year. Many of those advertisements for mutual funds like to show how well they're doing by including a bar graph. On it, this year's gains are represented by a black bar shooting straight up. Any second now, they seem to say, that bar will go right off the top of the page.
With the gains the stock market has made this year, just about every equity fund can publish an impressive chart like this. For the person trying to select an equity fund, however, finding a real top performer means looking at long-term performance.
The last truly bad bear market, for example, occurred in 1973-74. More recently, a lot of equity funds lost money in the 1981-82 period of high interest rates. But there were a few funds that managed respectable gains in both of these periods.
Long-term performance, then, is one standard for selecting a mutual fund. Another comes from you: What are your financial goals and what risks are you willing to take to achieve those goals?
Although there are more than 500 different equity funds to choose from, it is fairly easy to eliminate large groups of them by examining your goals and tolerance for risk.
''There are various categories of funds for various categories of incomes,'' summarizes Sheldon Jacobs, editor of the No-Load Fund Investor, a quarterly newsletter. ''People should pick a fund with objectives that match their own.''
A young recently married person, for instance, may want to accumulate money for a down payment on a house in several years or to send children to college. Such an investor might choose a growth fund that favors newer companies and other firms with a potential for fast growth in the future. Or, the more venturesome might opt for an aggressive growth fund in which the returns can be even higher - but so is the risk.
Growth and income funds appeal to more conservative investors. With these funds the main objective is highest possible current income, but without much risk of principal. Sometimes these funds invest in corporate bonds that can be converted to stock as well as common stocks in blue-chip companies.
A family man in his 40s or 50s may have children in college and good income from his job or business that puts him in a high tax bracket. He might switch to a tax-free bond fund.
An older person, on the other hand, may soon be on a fixed income, if he or she is not already. An older person also may be in a lower tax bracket and could move into an income fund.
Finding the best performers in these groups will take some work. Fortunately, there is an abundance of information in mutual fund newsletters and periodicals, many of which are available in public and college libraries or at brokerage offices. Any publication you buy or subscribe to for investment purposes, by the way, is tax-deductible.
One of these, the United Mutual Fund Selector (United Business Service Company, 210 Newbury Street, Boston, Mass. 02116, $75 a year), tracks load and no-load funds. The semimonthly publication contains articles on current trends in the industry, compares the performance of the funds, and recommends funds that can be expected to do well in the near future.
A monthly newsletter, NoLoad Fund*X (DAL Investment Company, 235 Montgomery Street, San Francisco, Calif. 94104, $77 a year), only follows the no-load funds. It also contains a report on the industry, short pieces on individual funds and management companies, and tables of performance comparisons, listed by investment objective. You can get a copy of the latest issue for $7.
For two dollars, you can get a directory of no-load funds from the No Load Mutual Fund Association (11 Penn Plaza, Department P., New York, N.Y. 10001). While the association understandably prefers no-load funds (those without a sales charge), it makes no other recommendations. But the guide is useful for finding out which no-loads fit which investment objective, addresses, and minimum and subsequent purchase requirements (some funds have no minimums). Other features, including switching privileges, redemption procedures, and distribution of dividends are also listed.
Once a year Forbes magazine has a large section on mutual funds. It includes a listing of all mutual funds, their phone numbers, assets, and investment results for the latest 12 months. Perhaps the most useful part of this list is a grading system for fund performance in up-and-down markets. A fund that scores an A in up markets may only get a D in down markets. So if you find a fund that gets, say, an A in up markets and a B in down markets and if that fund meets all your other needs and investment goals, it may be a good choice.
Forbes, however does not send out back copies. The most recent mutual fund guide was in the Aug. 29 issue, which should be available in a nearby library. If not, your library may be part of an exchange system where it can borrow the magazine from another library.
In addition to the quarterly newsletter, Mr. Jacobs's No-Load Fund Investor (PO Box 283, Hastings-on-Hudson, N.Y. 10706) publishes an annual handbook of no-loads. It contains useful articles on mutual funds, investment strategies, and a large section of tables comparing 10-year performance records. The handbook alone is $28, the same price as the newsletter. Ordered together, they are $45.
There is also an annually published compendium of all the mutual funds. Donoghue's Mutual Funds Almanac (Box 540, Holliston, Mass. 01746, $25) gives addresses, toll-free phone numbers, and 10-year performance records of over 650 load and no-load funds.