Tips for First-Time Investors in Mutual Funds
Before choosing a mutual fund, as with any investment, it's always important to do your homework:
Pay attention to fees. Some may be as high as 2%.
Diversify if possible.
Allow for annual adjustments, don't just set your mutual fund. Invest time to study your fund's performance and make changes as necessary.
If you have a short-term goal, pick a debt fund. Long-term investors can choose more equity than others.
Always balance risk and return. Think about the level of risk you are willing to take with your investment. In theory,
avoid funds that have only recently been doing very well for a a short period of time. It will most likely not do as well later on since it is unlikely to keep up such a strong performance. Instead, look for funds that consistently rank highly.
Don't be too quick to get rid of a fund that starts to lose money unless the losses have been consistent. Otherwise, hang in there, and give it time to imprtove. All funds are bound to have an off-year.
Analyze the funds expenses and fees, Fees can have a serious affect on the returns you will get on an investment. Search for mutual fund cost calculators online to help you with this.
If you need to earn money relatively quickly, say within a year, you should avoid investing in volatile funds, which are far less reliable. These types of funds usually require some time before they earn you money.
Ask if there have been any recent changes in the mutual fund's operations: Have strategies or advisers changed? (This is especially important if the manager responsible for a successful performance is no longer managing the fund.) Has the fund merged with another fund? All of these factors can affect perormance, so make sure you are well- informed.
Find out out how easy or difficult it will be to buy and sell shares and whether there are fees for doing so. In general, anything that will require extra work from the fund manager ( for instance working with overseas funds) will probably incur a higher fee. Check if any special services such as toll-free numbers or automatic investment programs are offered.
I hope you found these tips helpful!
on Oct 08, 2013 | Finance