Checklist before Investing in a Mutual Fund
There are many ways to select a mutual fund, each one has its own ups, downs, and risks. As you select your first mutual fund, consider these factors:
The fund manager: Often a fund is only as good as its management. If the fund manager has shown great performance in the past, future performance is likely to be above average. If the fund manager has been replaced, past performance becomes less meaningful and may even be worthless. A poor-performing fund that gets a new fund manager may turn around and become a top performer.
The size of the fund: Good fund candidates have at least $75 million under management and should be large enough to keep up with institutional investors. At the opposite end of the spectrum, funds with more than $40 billion tend to have problems with being too large.
The size of the fund: Good fund candidates have at least $75 million under management and should be large enough to keep up with institutional investors. At the opposite end of the spectrum, funds with more than $40 billion tend to have problems with being too large.
The objectives of the fund: Some funds focus on specialty or sector funds (gold funds or biotech funds) and often offer great returns. However, they arent good funds for the online investor who wants to own just one mutual fund. If you own just one specialty fund, you lose the advantage of diversification.
Purchase constraints: Although some funds require a minimum initial investment of $5,000.00, many good funds dont have this requirement. If you enroll in a funds automatic investment program, the minimum initial investment amount is usually waived. Additionally, many fund minimums are waived or substantially reduced for IRA investments. If you are not starting out with a large sum to invest check out the ones that waive the minimum initial investment amount; I started out investing using an online stock account with a $100.00 minimum, it got me started and I learned a lot.
Purchase constraints: Although some funds require a minimum initial investment of $5,000.00, many good funds dont have this requirement. If you enroll in a funds automatic investment program, the minimum initial investment amount is usually waived. Additionally, many fund minimums are waived or substantially reduced for IRA investments. If you are not starting out with a large sum to invest check out the ones that waive the minimum initial investment amount; I started out investing using an online stock account with a $100.00 minimum, it got me started and I learned a lot.
