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How to Find Value in No Load Mutual Fund Investing
What are you thinking when it comes to your no load mutual fund selections? Are you saving pennies and sacrificing dollars? Are you spending your time looking at expense ratios, analyzing Morningstar ratings and searching for funds with low fees...

Mutual Fund Types Explained
So you have decided to buy a mutual fund but you are not sure what type of mutual fund to invest in. Well, let's take a look at the different types of mutual funds you have to choose from. The three main categories of mutual funds are: Equity,...

What Are Mutual Funds Loads?
Loads are the most talked about fees that mutual funds charge. A "load" on a mutual fund is just another way of saying that the fund charges a sales commission for purchase, sale, or both. There are funds that charge loads and there are funds that...

Understanding Mutual Funds: Part III

Now you know what a mutual fund is and how it works from: Understanding Mutual Funds I & II. It's time to choose your funds, wether investing on your own or within an employer sponsored plan (i.e. a 401(k), 403(b), 457 or simple IRA to name a few). You would think that this would be the longest article in the series but it's just the opposite. By following a few simple rules you will be able to simplify your choices and be able choose a fund you are comfortable with.

The first rule is to understand that very very few funds outperform the market. This is not like picking an individual stock and hoping to get high returns quickly. Even expert stock-brokers fail to do this most of the time. Mutual funds by design are supposed to lessen their risk through diversification so in most cases it's not feasible to expect them to outperform the market by leaps and bounds. However, there are funds that are consistent outstanding performers. For example, the Dodge and Cox lineup of funds feature several that consistently outperform their respective indexes.

The second is to look for low expense ratios (see Part II of the series) and try to keep them as close to 1% as possible. Expense ratios are one of the biggest reasons that a funds performance internally can be good but the ultimate returns to you the investor are not stellar. Also remember that a sales load can also have a bearing on short term investments so if you're in it for less than five years you may be better off in a no-load fund.

The third rule is to look at turnover within a fund (the frequency of buying and selling of stock by the fund management). As a rule of thumb, funds with a turnover rate of 50% or less will tend to have better expense ratios. If you're a conservative investor, this is something you want to take a close look at.

The final rule is to look at consistency of performance. All funds are required to disclose their returns accurately so when researching try to look for

investments with a ten-year track record or longer. Those that perform well against their index with a consistent manager are a desirable trait.

For those of you willing to research the funds on your own one of the best resources is on the web at Yahoo! Finance. The easy to read pages and straight presentation of mutual funds has been top-rated by Kiplingers. If you are looking to compare and contrast funds pick several and search the information that Yahoo has, it will help clarify differences in management style as well as expenses. Also, going to that fund family's web site is also a good way to get information on a particular investment.

You can also always call an investment professional for advice as well. But one caveat: beware of what are known as "proprietary funds". These are funds that are available only through that company's brokerage. Company's such as Smith Barney and Merrill Lynch often pay higher commissions to brokers that work for them to sell such funds. Proprietary funds are easy to pick out, they simply bear the name of the brokerage that sells them. If you consult with someone who offers you these types of investments make sure that performance and expense ratios are in line with your goals.

Bear in mind that investing in general has inherent market risk associated with it. This article is meant for eduational purposes and doesn't take the place of professional advice or the information contained within a prospectus. This article does not endorse or detract from any investment or fund family, always seek the advice of a professional or read any prospectus before investing.

Rick Ramos has sold securities and is a licensed insurance producer for the State of Illinois. His articles regarding estate planning, retirement and investing have been featured on numerous websites. If you have any questions or would like more information you can send them to: rick@insuranceblueprint.com.


Written By: Rick Ramos

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