Summary: Lots of things to consider when you pick one mutual fund out of the thousands available. In this article, you’ll learn how to narrow the field.
By: Robert F. Abbott, freelance writer and author of Big Macs & Our Pensions
It’s easy to think about buying a mutual fund, but when it gets right down to actually making a choice and paying your money, it gets much more difficult.
When you get serious about picking a mutual fund, you need to consider all sorts of issues in a serious way. But before you can even do that, you need to decide which issues should get the most attention; after all, there are a host of them.
I think this article, at the Daily Buy Sell Adviser from the Money Reporter, will help you sort out the issues and prioritize them. For example, the writer notes that performance does matter, even though we’re told past performance is not a guarantee of future results, and that sometimes, good funds have a rough patch,
“Yet above-average fund performance should certainly indicate managerial capability in some degree. In particular, look for steady performance, year by year. Funds that lead their category over a few months may just be lucky. But funds that have performed in the top half of their category more often than not over a number of years could very well continue to do so — even if they miss for a while.”
The article addresses four other issues that matter when you pick a mutual fund.
I might even add a few myself. For example, and before you get to the issues like the one in this article, you should ask yourself some key questions; see my article Top Mutual Funds: As Defined by You.
When you’re developing a short list of funds, you’ll find it helpful to consult my article on the Sharpe Ratio, which will help you understand the risk/reward ratio behind each mutual fund.
To pick a mutual fund is to make a commitment; as always, the more research you can do before a decision the more comfortable you will be with the choices you make.