Tips To Buying Mutual Funds

Congratulations on your decision to invest in your retirement by buying mutual funds. It’s one of the best decisions you’ll ever make! But with thousands of different mutuals to choose from how do you pick the good from the bad. Here are some tips to buying mutual funds that will get you on the right track.

1. Read The Prospectus - Every fund must supply a prospectus to you before you invest. It’s the law. This is your opportunity to see inside the company. It tells you how the company has done at achieving its objectives and how what the goals of the fund are.
2. Fees - The prospectus will disclose that the fees attached to this mutual fund are. Try to choose funds that have the lowest fee ratio and never waste money on buying a loaded fund whether it is a front, back, or deferred load. The load is a sales charge and with so many funds to choose from there’s no reason to pay it!
3. Diversification - How well your investments do over time will depend on how much you invest in each class of investment more than it will depend on which securities you buy. Diversify and balance your portfolio.
3. Diversification - How well your investments do over time will depend on how much you invest in each class of investment more than it will depend on which securities you buy. Diversify and balance your portfolio.
3. Diversification - How well your investments do over time will depend on how much you invest in each class of investment more than it will depend on which securities you buy. Diversify and balance your portfolio.
6 Year Return - Don’t focus on short term returns rather look at overall track records that are at least 5 years. Compare it to other similar fund for performance comparisons.
7. Risk - After reading the prospectus determine what the risk factor is. Those funds that have the highest rate of return also have the highest risk factor and that risk factor might be more than your comfort level can bear. On the other hand a fund that has a somewhat lower return may have a more comfortable risk level. Of course all funds have some degree of risk even government bonds.
8. Volatility - Of course past performance is never a guarantee of future performance however it can show you how volatile a fund is. The more volatile a fund is the higher the risk. With volatile funds you need to have enough time to ride out the bumps. By reading the prospectus you can determine how long it takes for the fund to show gains.
9. Management - Each fund has a manager and you should know who that manager is. It is even a good idea to do some checking on the background of that manager to see how he or she has done with funds in the past. Watch funds for recent changes in management and be sure to explore the reason why the change.
10. Funds Age - Before investing find out how long the fund has been operating. New funds will often have excellent short term performance records but over time those records might not be so impressive. The older the fund the easier it is to determine performance based on history.
11. Taxes - Before buying a fund you should understand how it will affect your taxes. You’ll want to find out from the fund when they post their capital gains distributions so that you can decide if that will work with your tax planning.
Mutual funds are the best way to prepare for your retirement years. Planning smartly will ensure you get the best return on your money.