Thursday, Oct. 02, 2008

Guidelines to navigating mutal funds

If you’re in the market for a mutual fund, you’ll want to make sure to pick the right one.

There are hundreds of funds to choose from. So how should you go about investing in the right one? Here are some guidelines from Daniel Jimenez of Bankrate.com that you’d be wise to follow:

Set long-term goals

It’s important to know what your timeline is. If you don’t need the money for 20 years, you can af-ford to be more aggressive in your fund choice. You could potentially invest in a riskier sector like emerging markets. A shorter time horizon means you’ll want to stick with a more conservative fund.

Look for a well-managed fund

There will be plenty of information available on the fund you plan on investing in. You can or-der a prospectus and read the Web site. But not all of this information will say much. Cut through the marketing lingo and focus on three important factors: performance, management and consistency. Also check with in-dependent research companies that cover mutual funds. Morningstar, www.morningstar.com, a mutual fund rating and data firm, is a great resource.

Know the risks

Mutual funds are not thought of as extremely risky investments, mainly because they invest in hundreds of stocks. But this is no reason to go into a fund blind. Make sure to read the part of the prospectus that talks about risk. Some sectors of the market can perform badly even when the majority of stocks are going up. Be aware of what sector or sec-tors the fund invests in, and what can go wrong with these areas.

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