Investing in Mutual Funds Tip # 1: How to Get Started Investing
Investing begins before buying the first mutual fund (or prior to buying the next one). If you are just getting started investing with mutual funds, you may want to try beginning with a balanced fund. You will also want to ask questions: What is it that you would like to accomplish with your savings? Do you have specific goals, such as saving for retirement, or do you have some broadly defined goals, such as the accumulation of wealth for the general purpose of strengthening your financial security? What is your time horizon? One year? Five years? 10 years?Investing in Mutual Funds Tip #2: Know Your Risk Tolerance
Before choosing your funds, you need to have a good idea of how much risk you can tolerate. Your risk tolerance is a measure of how much fluctuation (a.k.a. volatility—ups and downs) or market risk you can handle. For example, if you get highly anxious when your $10,000 account value falls by 10% (to $9,000) in a one-year period, your risk tolerance is relatively low—you can’t tolerate high risk investments.Investing in Mutual Funds Tip #3: Determine Your Asset Allocation
Once you determine your level of risk tolerance, you can determine your asset allocation, which is the mix of investment assets—stocks, bonds and cash—that comprises your portfolio. The proper asset allocation will reflect your level of risk tolerance, which can be described as either aggressive (high tolerance for risk), moderate (medium risk tolerance) or conservative (low risk tolerance).Investing in Mutual Funds Tip #4: Review the Basic Types and Categories of Mutual Funds
Mutual funds are organized into categories by asset class (stocks, bonds and cash) and then further categorized by style, objective or strategy. Learning how mutual funds are categorized helps an investor learn how to choose the best funds for asset allocation and diversification purposes. For example, there are stock mutual funds, bond mutual funds and money market mutual funds. Stock and bond funds, as primary fund types, have dozens of sub-categories that further describe the investment style of the fund.Investing in Mutual Funds Tip #5: Learn How to Choose the Best Funds
With thousands of mutual funds to choose from and hundreds of different fund families offering them, an investor can suffer from choice overload and possibly make needless mistakes. Without a doubt, no-load funds are the best choice for mutual fund investors.Now that you know your asset allocation, you need to begin choosing the best mutual funds for you and your investment goals. If you have a broad choice of mutual funds you begin by using a fund screener or you may simply compare performance to a benchmark. You’ll also want to consider important qualities of mutual funds, such as fund fees and expenses (see the Expense Ratio), and manager tenure.
Most importantly be sure to choose a diverse selection of funds that combine to suit your risk tolerance and investing goals.
Mutual fund research
can be made easier with a good online research tool. Whether you are a
beginner or a pro and if you are looking to buy the best mutual funds,
review an existing fund, compare and screen different funds or you are
just trying to learn something new, these mutual fund research sites are among the best.Past performance of a mutual fund may not be a guarantee of future results but if you know how to analyze performance--if you know what to look for and what to avoid--you can make better investment decisions.
If you guess that the best S&P 500 Index funds are those that have the lowest Expense Ratios, you are mostly correct. However, in addition to low costs, there is a delicate balance of science and art to indexing that makes only a few mutual fund companies able to offer the best index funds.
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