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