How to Avoid a Bad Mutual Fund


Stock Mutual Funds : How to Avoid a Bad Mutual Fund	Homepage \| Add to Favorites

Recommended Sites

Related Links

Informative Articles

Honesty and Integrity Build a Foundation of Trust
"To be honest is to be real, genuine, authentic, and bona fide. To be dishonest is to be partly feigned, forged, fake, or fictitious. Honesty expresses both self-respect and respect for others. Dishonesty fully respects neither oneself nor...

MUTUAL FUND STUPIDITY
THE ALCHEMIST by AL THOMAS MUTUAL FUND STUPIDITY For years the mutual fund industry has been going great guns taking peoples' money and for the most part doing a very lousy job of making a good return for the investor. The reason I say that is...

Tax Reform, My Way
We need real tax reform and we need it now. Previous attempts have been made at tax reform, but they have only provided band-aid solutions that have still left us with too many quirks, complication, and read tape. There are several things...

Ten New Investment Concepts, the Time has come.
There's a rumor going around that the Mutual Funds are broken and just can't work anymore, for a multitude of reasons. They've tried index funds, but these, too, have been less than impressive since they hit the street a few years back, and are...

Using Sector Funds to Construct Diversified Mutual Fund Portfolios
'Sector funds are too risky.' 'I doubled my money with Fidelity Select Technology in 12 months!' 'Avoid sector funds.' If all of this sounds confusing, you are not alone. Sector funds are among the more misused and misunderstood investments. So,...

How to Avoid a Bad Mutual Fund

We have all heard the advantages of investing in a mutual fund over trying to pick individual stocks. First of all mutual funds hire professional analysts that are market experts and devout many hours of study to the various stocks. Unless you want to devout a large portion of your free time to the study of the financial reports, you probably won't have as much information to make a decision as a mutual fund manager.

Then there is the well documented advantage of diversification. Risk is reduced by holding several non correlated investments. Put simply, some go up, some go down and combined, the return levels off the fluctuations, or risk.

Finally, a mutual fund offers smaller investors a chance to invest in small increments rather than having to save a large chunk of cash to purchase 100 shares of stock.

Given the above advantages, it's no wonder that mutual funds have become a very popular form of investing. Now there are thousands of mutual funds to choose from, so how does one make a selection? Here are a few tips:

1. Do not be seduced to jump on the recently performing best fund. It may seem like the safe and rational thing to do, but like individual stocks, you want to buy low and sell high, not buy high and pray for more growth. 2. Even good funds may not be able to overcome the force of the overall market. You should be looking for funds that can exceed the broad market without increasing risk. Each fund has certain risk parameters that it is required to follow. Read the prospectus closely to understand what these are. 3. Limit the number of funds that you own. Unless you are trying to simply achieve the same returns as the broad market, diversifying into many mutual funds will not reduce your risk or increase your return by much. 4. Funds that become too popular and too big tend to slip in performance. There are several reasons for this.

Find more valuable mutual fund resources at www.best-mutual-fund.info

One final point to keep in mind is that the type of fund will totally depend on your investment objectives. There are certain funds that are designed for your objectives be they retirement, income, growth, funding the kids college, etc.

About the author:

Neal has a MBA in financial management. More information on mutual funds is available at Mutual Fund