7 Things you need to know before you invest in a Mutual Fund
1) Know what you will use the money for. List your goals and determine if they are short or long-term. By doing this you have an easier time making other investment decisions.
2) Determine your risk level. Think about whether you’ll lose sleep over worrying about the possibility of loosing your principal or the uncertainty of a fluctuating market.
3) Consider whether or not you can do without the money you’ll be putting in your investment and how long you are willing to leave it untouched. This of course depends on your goals. Plus, the longer you have a mutual fund the more you’ll incur fees and other costs.
4) Account for sales charges and fees. The costs of having your mutual fund professionally managed eats into your profits. Avoid mutual funds that charge front-end or load fees. These are expenses deducted from your initial investment that will have an impact on your returns.
5) Choose a particular fund style. Mutual funds are categorized into three: growth, value, and blend. Growth stocks are shares in companies which are generating profit at a face rate. Value stocks are shares in companies who may be experiencing rough financial times, and they’re bought at a cheaper price for that reason. Blended funds are a combination of growth and value stocks.
6) Choose from small-mid-or large cap stocks. Each represents the size of a company. However smaller companies are typically the fastest growing of the three. Large caps are the least risky because these companies have been around longer and are considered more stable.
7) Learn all you can about the person that will be managing your fund. Find out how long he or she has been actively managing funds and their performance record. You’ll be able to gain a lot of this information from the fund’s website, but dig deeper by asking questions and don’t be shy about asking them again and again until you understand the answer. A money manager that uses a lot of big terms and financial jargon isn’t a good match if you’re just starting to invest.
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Tags: load fees, money manager, mutual fund
This entry was posted on Sunday, October 12, 2008 at 6:56 am and is filed under Mutual Funds. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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