Sophie Moench February 24, 2020 Mutual Fund
The obvious advantage of mutual funds is that they allow you to pool your money with other investors and leave the decision making to someone else. You do not have to spend your days conducting in-depth analysis of stocks and other investments. You simply invest in a mutual fund and let the manager make the decision for you. That is the theory, but of course we all know we are going to have to do some research before we invest in a mutual fund. How much mutual fund analysis is appropriate before making an investment?
Sometimes it is just a lot easier to pick fabulous mutual funds, and let professional money managers make the individual stock selections for you. If you go this route, and for many it is the way to go, than I suggest your big decisions are what sectors you want to invest in, and what are your asset allocations. Sounds like fancy language, but really it is not. It is just plain common sense investing. What is your aversion to risk? Do you want to embrace investment risk, or do you seek to encounter as little risk as possible.
Lipper Inc ranks its funds based on prior performance. The worse the performance the higher the rating to indicate a larger risk, the lower the rating the better the performance has been. The total return, preservation, consistency of the return, its tax efficiency and the expense are all factored in to determine the funds actual risks. This method should be more accurate in determining the actual risk and profit factor involved in the mutual fund.
Investing in mutual funds online are always subject fees and this can be a tricky subject. Brokers charge fees and these can widely differ depending on the broker you choose to go with. Always read the fine print with anything dealing with money exchanging hands. There could be hidden fees or fees for changing funds that are within the same fund family. Some brokers do not charge any fees and these may be the ones you should look into.
Index Funds: Any fund that is made up of a static portfolio structured to mirror the investments of a proposed market index is classified as an index fund. There are small cap indices, bond indices, international indices, specialty indices and many others. The most widely used is the S&P 500 index where the fund uses the same 500 stocks that are included in the Standard and Poors 500. These portfolios are only changed when and if the index changes its holdings which allows for a very tax efficient, low turnover investment.
Once you have discovered which index your fund tends to follow it will be obvious on the charts then pick one or two funds that follow the $RUT, one or two that follow the $MID, one or two that follow the EFA foreign funds are usually easy to spot by their names , and finally one or two that follow the NASDAQ.
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