| Now you know what a mutual fund is and how it | | | | The final rule is to look at consistency of |
| works from: Understanding Mutual Funds I & | | | | performance. All funds are required to disclose |
| II. It's time to choose your funds, whether | | | | their returns accurately so when researching try |
| investing on your own or within an employer | | | | to look for investments with a ten-year track |
| sponsored plan (i.e. a 401(k), 403(b), 457 or simple | | | | record or longer. Those that perform well against |
| IRA to name a few). You would think that this | | | | their index with a consistent manager are a |
| would be the longest article in the series but it's | | | | desirable trait. |
| just the opposite. By following a few simple rules | | | | For those of you willing to research the funds on |
| you will be able to simplify your choices and be | | | | your own one of the best resources is on the |
| able choose a fund you are comfortable with. | | | | web at Yahoo! Finance. The easy to read pages |
| The first rule is to understand that very very | | | | and straight presentation of mutual funds has |
| few funds outperform the market. This is not like | | | | been top-rated by Kiplingers. If you are looking to |
| picking an individual stock and hoping to get high | | | | compare and contrast funds pick several and |
| returns quickly. Even expert stock-brokers fail to | | | | search the information that Yahoo has, it will help |
| do this most of the time. Mutual funds by design | | | | clarify differences in management style as well as |
| are supposed to lessen their risk through | | | | expenses. Also, going to that fund family's web |
| diversification so in most cases it's not feasible to | | | | site is also a good way to get information on a |
| expect them to outperform the market by leaps | | | | particular investment. |
| and bounds. However, there are funds that are | | | | You can also always call an investment |
| consistent outstanding performers. For example, | | | | professional for advice as well. But one caveat: |
| the Dodge and Cox lineup of funds feature | | | | beware of what are known as "proprietary |
| several that consistently outperform their | | | | funds". These are funds that are available only |
| respective indexes. | | | | through that company's brokerage. Company's |
| The second is to look for low expense ratios (see | | | | such as Smith Barney and Merrill Lynch often pay |
| Part II of the series) and try to keep them as | | | | higher commissions to brokers that work for |
| close to 1% as possible. Expense ratios are one | | | | them to sell such funds. Proprietary funds are |
| of the biggest reasons that a funds performance | | | | easy to pick out, they simply bear the name of |
| internally can be good but the ultimate returns to | | | | the brokerage that sells them. If you consult with |
| you the investor are not stellar. Also remember | | | | someone who offers you these types of |
| that a sales load can also have a bearing on short | | | | investments make sure that performance and |
| term investments so if you're in it for less than | | | | expense ratios are in line with your goals. |
| five years you may be better off in a no-load | | | | Bear in mind that investing in general has inherent |
| fund. | | | | market risk associated with it. This article is |
| The third rule is to look at turnover within a fund | | | | meant for educational purposes and doesn't take |
| (the frequency of buying and selling of stock by | | | | the place of professional advice or the information |
| the fund management). As a rule of thumb, funds | | | | contained within a prospectus. This article does |
| with a turnover rate of 50% or less will tend to | | | | not endorse or detract from any investment or |
| have better expense ratios. If you're a | | | | fund family, always seek the advice of a |
| conservative investor, this is something you want | | | | professional or read any prospectus before |
| to take a close look at. | | | | investing. |