Many investors that do not have the time, confidence or inclination to research individual stocks find mutual funds the perfect way to participate in the stock market.
Investors that pick individual stocks often find mutual funds compliment their investing strategy.
For instance, they may invest in mutual funds to handle their foreign investments since information on individual foreign stocks aren't always easy to find.
Beware!Even though we take comfort in knowing dedicated professional stock pickers are in charge of mutual funds, you may be surprised to learn most mutual funds fail to beat the performance of the S&P 500 market index.
Below are five easy tips to follow and your chances of picking a winning mutual fund will greatly improve.
Proven track record - Look for funds that have been in existence a minimum of five years and performed in the top quartile of their peer group over the past three years.
Don't be fooled into thinking that last years top performers will repeat at the top of this year's list.
Management - If the fund manager has changed in the past year you should be skeptical.
The fund manager is the funds leader or quarterback.
If a fund has been successful it may be hard for the new manager to continue that success.
A new manager may have a different perspective on investing than the previous manager.
Expenses - Fund expenses (trading costs, administrative fees etc.
) subtract from your investment returns.
All funds have expenses but you should look for funds with expenses of 1.
5% or less.
Pick no-load funds - No-load funds do not charge you to invest in their fund.
Load mutual funds typically charge from 4-6%.
There are top performing no-load and load funds, so why pay 4-6% of your investment dollars for the privilege of investing in loaded mutual funds? Mutual Fund information - The bible for mutual fund evaluation is 'Morningstar Mutual Funds' available at your local library.
A couple of other sources are the annual February issue of 'Money Magazine' or the annual September issue of 'Forbes Magazine'.
Another way to invest in mutual funds is to pick an index fund.
With these funds you pick a particular stock index like the NYSE, Nasdaq or S&P.
The index fund will mirror the performance of the stock index you choose.
If you believe the U.
S.
economy will do well and inflation will stay under control this can be as good a choice as any.
There are over 35 categories of mutual funds to choose from.
Once you know your investment objective, use the above tips to find the right fund for you.
Watch for changes in your measurements.
If your fund no longer measures up, sell and invest in another one.
Good luck with your mutual fund investing.