Starting to Define Your Goals and Risk Tolerance
When three money managers in Boston pooled their funds in 1924, the first mutual fund was born. Over the next nine decades, this simple idea grew into one of the largest industries in the world, now controlling trillions of dollars in assets and providing small investors a way to grow their wealth through regular investments via a dollar-cost averaging plan. In fact, the mutual fund industry has birthed its own stars with consistent followings: Peter Lynch, Bill Gross, Marty Whitman, and others at Tweedy, Browne & Co.
Pay Attention to Expense Ratios – It Can Make a Difference
Running a mutual fund requires money. Things like copying, portfolio management, analyst salaries, coffee, office leases, and electricity must be covered before your money is invested! The percentage of assets that goes to these things – management fees and basic operating expenses – is known as the expense ratio.
Avoid High Turnover Mutual Funds
It’s important to focus on turnover – the percentage of the portfolio that is bought and sold each year – for any mutual fund you’re considering. The reason for this is taxes. If you’re only investing through a tax-free account like a 401k, Roth IRA, or Traditional IRA, this isn’t a consideration, and it doesn’t matter if you’re managing investments for a nonprofit. For everyone else, taxes can take a big bite out of your returns, especially if you’re lucky enough to be climbing the income ladder. You should be wary of funds that regularly turn over 50% or more of their portfolios.
Look for Experienced and Disciplined Management Teams
In this age of easy access to information, it shouldn’t be hard to find details about your portfolio manager. If you find yourself holding a mutual fund with a manager who has little or no track record or a history of large losses when the stock market as a whole has performed well, consider fleeing with your
Source: https://www.thebalancemoney.com/picking-winning-mutual-funds-357957
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