6 Mutual Fund Investing Tips
As a stock trader how do I make a living trading stock? There are a number of reasons behind that. But if you want to try a different air of financial adventure, why not have a slice of the luscious mutual fund. It’s tempting…and fulfilling…
Financial Web has unraveled 6 precious tips to help you grab that edge in mutual fund investing:
Keep ongoing expenses as low as possible. You should always keep a close watch on the sales charges (loads) and fees of your mutual funds. This is especially important for beginning investors, because you’re probably starting out using small amounts of money, and you want as much of it as possible to be kept actually working for you and not lost to sales or operating expenses. Also, be aware that a fund’s ongoing costs are seldom reduced as its net asset value (NAV) declines. In a bear market, these fees erode an even larger percentage of your fund’s annual return.
Don’t get blinded by short-term performance. Funds that show spectacular one-year returns can be quite tempting; however, it’s best not to base your investment decision on short-term results like these. In order to assess whether a fund is a good long-term investment, it’s imperative to look at its past performance over a reasonably-long period of time – three-, five-, even ten years. You should also consider the consistency of that return, how the fund performed relative to similar ones, and how it performed in relation to the overall market. Also check out annualized returns.
Be aware of your fund manager’s track record. Always check the length of time that a manager has been in charge of a particular fund; the longer amount of time the better – preferably five years or more. Look for one who follows a consistent investment strategy and has delivered reliable (and hopefully increasing) returns over a relatively long period of time.
Make your investing as easy and automatic as possible. The easiest way to invest in a mutual fund is to set up an automatic plan with your employer or fund company. If possible, use your 401(k) plan at work to have the money automatically deducted from your paycheck before taxes.
Monitor your fund’s performance periodically. Check your mutual fund’s performance monthly, or at least quarterly. This will allow you to determine if you should increase your investment in the fund, or perhaps decide if it’s time to sell. And when evaluating, be sure to consider your fund’s performance in relation to other funds and the overall market.
Diversify using asset allocation. Yes, mutual funds are usually diversified; it’s one of the primary benefits that make them attractive investment instruments. Oftentimes, however, they’re diversified within a certain group of securities. It’s wise to also be diversified across various asset classes – stocks, bonds, and cash equivalents – and among the various types of stock and bond funds. The rationale for this is based on historical performance data. Different groups of securities and different economic markets provide better returns at different times.
