Thursday, September 14, 2006

Selecting the best mutual funds

Selecting the best mutual funds

Are you looking for the best mutual funds? Do you purchase mutual funds directly from the fund company's. Thanks to the online world there are many ways for you to research the best funds. Of course historical/past performance does not predict future performance. Below are a list of handy and useful online resources for helping you select the best mutual funds.

  1. Schwab Select List: One great way to find mutual funds is through the research tools at your broker. Even if you don't belong to the broker a lot of times you can get free research. For example the Schwab Select list is online and available to anyone.
  2. Morningstar online rating service: I always like to check the Morningstar rating of any mutual funds that I might be considering. Morningstar provides a very concise easy to understand guide to the objectives, management, holdings, and performance of the fund.
  3. Yahoo mutual fund screener: Yahoo has some of the best and easiest to use mutual fund screeners. I highly recommend that you check out their Fund Screener which allows you to search all the funds in the market, and the Top Performers which highlights the best-performing funds by sector, style, and strategy. You can also down load the prospectus of any fund at the Prospectus Finder.

There are several factors to consider in picking a good mutual fund below is a short list of things that I consider when picking a mutual fund:

  1. Management tenure: It is important to understand how long the current manager has been managing the fund. Remember the difference between investing in a mutual fund vs. investing in an ETF is the people managing the money. The manager that has a solid track record in the past could have good results in the future so it is factor that I look at when selecting a fund.
  2. Size of mutual fund: The size of the fund is important. Smaller funds tend to be able to out perform the market. For example it is a lot easier for a mutual fund that has $50 million in trading assets to beat the market than it is for a mutual fund that has $15 billion in assets.
  3. Risk level: The Morningstar rating service will explain to you the risk level of each fund. If you are looking for a stable fund with steady returns that doesn't fluctuate a lot then you probably do not want to select a fund with the highest risk level.
  4. Past performance: Of course the past performance is key. I want to try to find a fund that out performs in its sector. Or is beating the overall market.
  5. Last note in regards to mutual funds. Make sure as you add new mutual funds to your portfolio you determine how the mutual fund is different than mutual funds you already own. I made the mistake back in the late 90's and early 2000's of having a lot of different funds but almost all the funds had the same types of stocks in them. An as a result when the market tanked my portfolio was hit hard.

Recommended reading: If you are looking for additional information on how to invest in mutual funds check out The Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Also for information on picking the right mutual fund check out Someone Will Make Money on Your Funds - Why Not You: A Better Way to Pick Mutual and Exchange-Traded Funds.

Tags: investing, business, debt

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