Opportunity funds

Certain types of mutual funds are not suitable for a buy-and-hold strategy. These include highly volatile funds that experience large swings up and down that, over a long period, negate most of their gains.

Natural Resource funds are a good example. Currently, these funds are doing well thanks to strength in the oil and gas sector. The average resource fund gained 9.3% over the three months to Aug. 31 and many had double-digit returns during that period.

However, over the long term, these funds have been duds. Average annual compound rate of return for the five years to Aug. 31 for the category was -0.5%. Over 10 years, the average fund gained just 5.3% annually, about the same as a money market fund. Considering the relative risk, it’s a poor trade-off.