Mutual Fund Investing: Performance Isn’t Everything By Bob Freeman At Isnare.com Ezine Articles

When it comes to Mutual Fund Investing, performance truly isn’t everything. Too often, investors rely almost totally on a fund’s past performance to determine whether or not it’s a good buy.

When it comes to Mutual Fund Investing, performance truly isn’t everything. Too often, investors rely almost totally on a fund’s past performance to determine whether or not it’s a good buy. While it can be a worthy guide, the U.S. Securities and Exchange Commission warns against using past performance as an investor’s only resource tool. Just because a fund performed well in the past doesn’t mean it will continue to do so. Over the long haul a fund’s success depends on a lot of factors.

Check the Fees

There are all kinds of fees and charges associated with investment funds. Make sure you understand how these fees will affect your bottom line. For instance a high-cost fund with a 1.5% operating expense will generate app. $49,000 in 20 years for just $10,000 in investment capitol, while a low-cost fund with a .5% expense will make over $60,000! To determine which fund will yield the most profit, run the costs through a mutual fund cost calculator.

Check the Taxes

Before investing in a new fund, make sure it isn’t about to make a capital gains distribution. Otherwise, you may be required to pay taxes on it - even before it makes you any money!

Check the Fund’s Age

Newer, smaller funds often have better short-term performance than larger, better established funds. As funds grow in size, the impact on individual funds is lessoned, and so are the profits generated from it. Check a fund’s performance record to see how it has weathered the ups and downs of market changes over a set period of time.

Check the Turnover Rate

A fund that rapidly buys and sells may cost the investor more in the long run with higher trading costs and capital gains fees. Check a fund’s portfolio to see how often they turn over securities.

Check the Volatility

Check to see how volatile a fund has been to see if it’s right for you. Investors who expect they’ll need their investment capitol back within a year or two should shy away from volatile funds, since they are by nature a riskier investment.

Check the Risk

All funds carry some form of risk. But some carry more than others. Funds which invest primarily in high-tech stocks are usually riskier, while funds that diversify in stocks and bonds may yield less profit, but the money you make may be considerably safer.

Check for Recent Operational Changes

Operational changes such as merging with other funds, or changing advisors and investment strategies can drastically affect future performance.

Check Services and Fees

Different funds offer different services. Check to see what services (and associated fees) are available which each type of fund you are considering.

While high performance in the past can be a good indicator of good things in the future, it is rarely a guarantee that an investor will continue to make money. Keep a close eye on all of your mutual funds to ensure that what was performing well continues to do just that.

Published At: Isnare Free Articles Directory http://www.isnare.com
Permanent Link: http://www.isnare.com/?aid=155997&ca=Finances

Important Notice DISCLAIMER: All information, content, and data in this article are sole opinions and/or findings of the individual user or organization that registered and submitted this article at Isnare.com without any fee. The article is strictly for educational or entertainment purposes only and should not be used in any way, implemented or applied without consultation from a professional. We at Isnare.com do not, in anyway, contribute or include our own findings, facts and opinions in any articles presented in this site. Publishing this article does not constitute Isnare.com's support or sponsorship for this article. Isnare.com is an article publishing service. Please read our Terms of Service for more information.