Armchair Millionaire Community Bulletin: Sorting Out Your Mutual Fund Choices

Mutual funds are the individuals investors workhorse. But they definitely are not all created equal. Be sure you know the key questions to ask about any fund--before you buy.

New York, NY (PRWEB) June 28, 2005 -- According to the Investment Company Institute, the mutual fund industry trade group, there are now more than 8,000 mutual funds out there. So its no wonder that people are sometimes overwhelmed by the choices available

As evidenced by their stories, members of the Armchair Millionaire community have been buying mutual funds for a long time. Here is one comment weve heard:

I mainly look for funds from well-established mutual funds companies with long track records of success. Next I will look at the expense ratio. Higher expenses do not necessarily equate to higher returns. Generally high expenses contribute to the opposite. Also, the turnover in a fund is very important. If you're holding a fund in a taxable account, the turnover becomes a big issue for you every April 15. Finally, I want to own a fund with competent managers that have been with that fund company and particularly that fund for a substantial amount of time with a track record of success against their appropriate benchmark." --Jeremy

Advertisements for mutual fund companies will always tell you that their funds are great. What you need to know is whether their funds will meet your investment needs, and do so in a cost-effective way. My guide has the questions you should ask about any mutual fund youre considering.

The Armchair Millionaires Guide to Choosing the Right Mutual Fund for You

How does it fit in my portfolio? This is the first and most important question you should ask. People are far too concerned with finding the best" mutual fund while neglecting proper asset allocation, which actually has much more to do in the long run with your overall returns than does your choice of individual investments.

Does it have a load? Loads, or sales fees, come straight out of your investment. There's no evidence that load funds perform any better than no-load funds, so keep your money and stick with the no-loads. And make sure that youre not subject to a back-end load--a fee that is charged when you sell the fund.

Whats the expense ratio? Mutual fund management fees and expenses are subtracted from the fund's assets, so unless youre paying attention, youll never know you're missing anything. Nonetheless, the impact these fees have on your return can be significant over time. So stick with funds with expenses that are less than 1 percent. And to find out exactly how expenses affect your return, go to the Security and Exchange Commission's fund cost calculator at www.sec.gov.

How has it performed? Dont get sucked into a fund by its short-term performance, because last years hot fund often turns out to be this years straggler. Every mutual fund prospectus will tell you the fund's performance over the ten years (or a shorter period, if the fund has been in existence for less than ten year). This ten-year period will help you see how the fund has performed through a variety of market conditions such as bull markets, bear markets, recessions and periods of economic growth.

How does its performance compare to its benchmark? The prospectus will also compare the funds performance against a market benchmark that's appropriate for that fund. For example, it would might compare a large-cap fund against the S&P 500 Index and a small-cap fund against the Russell 2000 index. Few funds have ever beaten their benchmarks over time, so look for funds that come close.

The Bottom Line: Mutual funds are the individuals investors workhorse. But they definitely are not all created equal. Be sure you know the key questions to ask about any fund--before you buy.

The Armchair Millionaire Weekly Survey: Given any thought about how youll pay for your health care during retirement? Log on to www.armchairmillionaire.com and let us know.

Lewis Schiff founded the Armchair Millionaire Web site in 1997. His first book, The Armchair Millionaire, was published in 2001. Schiff's newest report, "How to Know When You Are Rich," is now available at www.armchairmillionaire.com.

Contact Information:
Lewis Schiff
Armchair Millionaire
877-833-2823
http://www.armchairmillionaire.com

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