| For people who don't have the time and | | | | |
| expertise to research and track individual | | | | There's no evidence that load funds perform |
| stocks--which includes most of us--mutual | | | | any better than no-load funds, so keep your |
| funds are one of the best possible ways to | | | | money and stick with the no-loads. |
| invest. And a lot of other investors | | | | |
| agree--the Investment Company Institute, the | | | | Don't overlap. Funds are themselves a |
| trade group for the mutual fund industry, | | | | diversified investment, but don't think that |
| says that Americans have nearly $7 trillion | | | | owning a lot of funds means that you'll be |
| stashed away in mutual funds. | | | | even more diversified. |
| | | | |
| But there are thousands of fund choices, so | | | | Instead, you may end up with many funds that |
| it's very important to sort out the weak from | | | | own the same stocks. You should be able to |
| the chaff. We recently asked the Armchair | | | | achieve adequate diversification with as few |
| Millionaire community for its advice on what | | | | as two or three funds that target different |
| to look for when shopping for a fund. They | | | | areas of the overall stock market. |
| offered us this battle-tested wisdom: Check | | | | |
| out the management. "I look for long-term | | | | Don't chase performance. Last year's hot fund |
| management. I want my fund managers to have | | | | can be this year's laggard. Making your fund |
| been in their jobs for a long time--at least | | | | choices based on recent performance has |
| seven years." --Cole Consider fees. "I look | | | | historically been a losing proposition. Look |
| at the fees first. Just because a fund | | | | for long term histories through a variety of |
| charges higher fees doesn't mean that it is | | | | market conditions such as bull markets, bear |
| well managed. If a fund has above-average | | | | markets, recessions and periods of economic |
| fees, I skip it." --ACF Compare returns to a | | | | growth. |
| benchmark. "The past performance of a fund | | | | |
| alone is meaningless. You have to compare it | | | | Don't trade in and out of funds. Trying to |
| to how the market overall has done. I always | | | | time your investment and switching frequently |
| compare large cap funds to the S&P 500 index | | | | between funds is pointless. |
| and small cap funds to the Russell 2000." | | | | |
| --James49 Watch the tax impact. "I want my | | | | You invest in funds to leave the trading up |
| money managed for the least taxable exposure. | | | | to a professional, so leave your money in |
| | | | your funds long enough for the portfolio |
| I expect my fund managers to be able to | | | | managers to do their jobs. |
| manage the fund for maximum tax efficiency." | | | | |
| --Presto It's also important to know what not | | | | THE BOTTOM LINE: All mutual funds are not |
| to do when choosing a fund. Use my checklist | | | | created equal. When you choose a mutual fund, |
| to avoid the most common mutual fund | | | | you're really choosing a person or a team to |
| mistakes. | | | | manage your money. |
| | | | |
| Don't pay a load. Loads, or sales fees, come | | | | Use common sense and make sure to get |
| straight out of your investment. | | | | objective advice before you make a purchase. |