Mutual Fund Investment Advice
Mutual fund investment advice. How to invest in mutual funds successfully? Here are the most important factors you must consider before making a decision.
Advantages of Mutual Fund
Mutual funds are helpful for those who have limited time and resources, and would prefer to leave the management of their money to someone else. They offer the expertise to invest in highly specialized areas such as international equities, and may thus be attractive if you would like to gain exposure to these markets.
How to Invest in Mutual Funds
How to buy mutual funds? There are many factors to consider – the three most important factors you must compare are the fund’s objectives, track record and expenses.
Compare Mutual Funds
Different funds have different investment objectives: growth, value, income, international exposure, contrarian investing. These will dictate the type of strategies followed by the fund – are the fund managers value investors? Or do they invest primarily for growth? Other funds adopt a strictly contrarian approach.
Compare the fund’s performance to the overall market and sector performance. Note that more than 70 percent of all mutual funds underperform, so scrutinize the performance figures carefully. What is the time span, what did the fund compare itself against, and what is the mode of comparison?
Risk Measure: Sharpe Ratio
Look at the mutual fund’s Sharpe ratio. This is a very important measure of the level of risk you would expose yourself to.
The Sharpe Ratio compares performance to fund volatility and is a good measure of risk. The lower the ratio, the better.
Expenses: Expense Ratio
To gauge your level of expenses, look at the expense ratio. This ratio sums up all the costs of investing in the fund, which typically include the management costs, 12-b-1-, operating costs, loads and other miscellaneous costs.
Mutual Fund Advice
Mutual Fund Investment Advice: Which are the best information sources for the mutual fund information required above? Yahoo Finance and Morningstar are my personal favorites.