Four Tips for Choosing the Best Mutual Fund

Mutual funds are full of perks that make them attractive investment options more the individual investor. The single biggest benefit to purchasing a mutual fund is the ability to achieve instant diversification. If you are considering adding a mutual fund to your investment portfolio, make sure you know how to spot the top mutual funds. As with many products in life, not all mutual funds are created equal. There are thousands of mutual funds out there, but finding the best mutual fund for you isn't always an easy task. Here are four tips that should help you get on the right track to finding the best mutual fund for your investment portfolio.

Four Tips To Help Choose the Best Mutual Fund

1. Long-Term Performance- In the end it is all about results, so you definitely need to determine which mutual funds have performed well over the long haul. Any fund can be a star for a year, but the best mutual funds will have impressive five and ten-year return averages. Find a good mutual fund screener like the one that Yahoo Finance offers, and look for funds that have proven be to quality investments over time. Remember to consider how well this mutual fund has done against its peers, since that is typically a good measuring stick moving forward.

2. Fees and Expenses- This is an area that most investors overlook, and that is a big mistake. Mutual fund fees and expenses can add up very quickly. I see absolutely no reason to ever choose a loaded mutual fund when they are so many great no-load mutual funds available. You'll also want to consider the annual expense ratio of the fund and what kind of extra charges, if any, the fund may have. Skipping this step will badly hurt your ability to choose the top mutual funds available.

3. Management Tenure- How long has the current mutual fund management team been in place? If you are investing in a fund that has switched managers recently, the long-term track record means very little. On the other hand, if this management team has been at the helm for quite some time, the long-term performance averages are important in the decision making process.

4. Investment Philosophy- Make sure you figure out what the investment philosophy of the mutual fund is. The best place to find this kind of information is usually either in a mutual fund prospectus or on the mutual fund company's website. Aligning your investment goals with a mutual fund that has similar goals is important when you are choosing the best mutual fund for your portfolio.

Sources:

Yahoo Finance "Fund Screener"

Yahoo Finance Mutual Fund Center "Load vs. No-Load Funds"

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