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Written by Justin Lukasavige
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We've spent the past few weeks discussing investments so you'll know by now that we recommend good low risk mutual funds as the investment of choice.
There are a variety of things to look for in a mutual fund before you invest. As mentioned before, the stock market has averaged nearly 11% during the past 70 years. Depending on how aggressively you invest your money, I think you can generally count on a rate of return somewhere in the 10% - 12% range.
Now, what to look for in a mutual fund...
I usually recommend an index mutual fund for most of your investments. An index fund tracks a specific index, such as the S&P 500, which are the largest 500 stocks on the New York Stock Exchange (NYSE). Most index mutual funds do not have specific managers that are in charge of the fund, but rather are mostly automated in their day-to-day operations. If the fund does have a manager, it is important to note that he should have a long track record of good returns on that fund. If that manager or management team has only been with that fund for the past year or so, there is not much chance that the returns will continue to be what they have been over the past few years.
Another important number to look at is the expense ratio. It is fairly easy to find a fund with good returns and expenses less than 1%. The lower the better, but remember, if you buy a fund with an expense ratio of 1.5% that returns 12%, it would be better than a fund with expenses of .5% that returns 9%.
Usually I find that most people only care about one particular number; the past returns of a fund. While this is great information to be armed with, I always caution that past performance is no guarantee of future returns. That is especially true if a new manager is on the job.
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Written by Jacob Georgeson
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Mutual funds are popular. If you are not invested in one right now you are more than likely to be invested in one in the near future either directly or indirectly. Choosing a good mutual fund is important for maximizing your investment performance.
Like any other investment choosing a good mutual fund really depends on your needs. Also like any other investment mutual funds are a balance between risk and performance. The higher the risk you are willing to take the higher the potential profits. Investing in individual stocks is considered riskier than investing in mutual fund although the potential gains are higher. Mutual fund usually hedge individual stock risk by managing a large portfolio of stocks and other instruments. That balance also averages the gains.
There is no simple answer to what makes a mutual fund good as the question is fundamentally wrong. The right question is what makes a mutual fund good for you and the answer depends on what you are looking for. In order to choose a mutual fund you choose both know what your options are and also really know and understand what your needs are and how much risk you want to take.
One of the more common mutual funds that tend to perform well at a lower risk are index mutual funds. Like their name suggests index mutual funds value is attached to the performance of a specific index like the famous S&P 500. Index mutual funds are pretty simple to understand and to track and for the most part there is no big difference between different funds if they invest in the same index.
Other funds invest in stocks and other instruments. Most funds have a theme or a policy of how they invest. For example a small cap fund invests in stocks of small cap companies why an technology fund invest in technology innovative companies. Themed mutual funds are managed by people who decide what to buy when to buy and when to sell each of the individual stocks. One of the most important things when choosing a mutual fund is to read about who manages its daily operations and who decides how the fund invests its money. Check how experienced the management is how long have they been with the fund and with other funds and how well have they done. Although a manager they did very well in the past can certainly fail in the future it is still statistically a better choice than an inexperienced manager or a manager that failed. |
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