Tips For Choosing High-Performance Mutual Fund

Most people who invest in mutual funds don't know what they are doing. They take advice from someone at a bank or perhaps a friend and plunk down money into a fund. Sometimes this strategy works, but most of the time, it doesn't.


When you invest your money in a mutual fund, you are trusting someone to invest in the stock market for you. Because of this, you want to be sure this person knows what he or she is doing. Also, you want to make sure that this person is not charging you too much to manage your money for you. Mutual funds fees are "hidden," in the sense that they do not charge you an upfront fee but rather a percentage of the amount of money in your account. If this percentage is too high, you would do better just blindly picking stocks yourself.

Here are five helpful tips for choosing the right mutual funds.


1. Keep the fees low. Generally, expense fees should not be much higher than 1% if it is just a basic domestic equity fund. You should never invest money in a fund that also charges a "load," which is an additional fee that is ridiculous to pay. Never invest in funds that charge loads; those funds are for suckers.

2. Check the asset base. Mutual fund managers only know of so many good investments. When they have too much money to manage, they begin investing in stocks they don't like much but need to invest in anyway or else they'll just have money laying around. There's little reason to invest in a fund with over $5 billion in assets. It's best if it's under $2 billion generally.

3. Consider an index fund. This is a fund that tracks a stock index, such as the S&P 500. For these funds, the manager just buys whatever stocks happen to be in the index. Since this is not much work, the fees are much lower. Even though this method is simple, it has proven to perform better than most mutual funds. Some high performance index funds include FSMKX (Fidelity S&P 500) and VIMSX (Vanguard S&P 400 Midcap.

4. Evaluate the fund's strategy. If you have a long term outlook, look for a more aggressive fund that invests in small-cap stocks, international stocks, and riskier stocks in general. High risk tends to result in high performance in the long run. If you are more risk-averse, consider an S&P 500 index fund.

5. Keep the fees low. Did I mention this already? Well, I'll mention it again. This is where most people mess up. Make sure you are not paying a load or paying too much in fees to the mutual fund.

Where to Invest ?

When deciding where to invest your money, you need to always take into account your investment goals and objectives. Different types of investments carry varying degrees of risks and potential return.


Fixed Deposit

A bank FD is a very safe investment. The CD is FDIC insured up to $100,000, so there truly is minimal risk. The only downside is that you cannot withdraw that money in the CD for a specific amount of time or else you'll receive a penalty. Bank CDs generally only pay up to 5% interest.

Bonds

A bond is essentially a loan you make to a company or a government. Bonds have varying degrees of risk, from essentially risk-free treasuries to junk bonds. The higher the risk of the bond, the higher the return will generally be.

Stocks
Stocks are investments in companies. Depending on the company, the risk of the investment can be high or low. Obviously, buying stock in Johnson and Johnson is a lot less risky than a new internet startup company. In general, the stock market returns on average about 10% a year, though the actual return of any given stock will vary significantly.

Mutual Funds
A mutual fund typically invests in over 100 stocks, so it's an instant way to diversify your portfolio. However, the mutual fund generally charges a fee, which is about 1% of your assets per year. Because of this fee, most mutual funds do not outperform the market; a monkey blindly picking 100 stocks but not charging you a fee could easily outperform most mutual funds.

Real Estate
Real estate is a popular investment. The most obvious real estate investment you'll make is when you purchase your home. Your home can go up or down in value when you sell it; it depends on the housing market in your area.







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