Investing In Funds: 10 Tips
Investing in funds is a good way to make money and these 10 tips will show you the basics of mutual fund investing. While investing in funds can be overwhelming, it does not have to be. Here are ten tips that will streamline the process.
- Buy what you know. Buy funds that invest in sectors that you understand, if you don’t you will not know when it is time to sell and you will lose a lot of money.
- Open an account with a discount broker. Remember big Wall Street names mean higher fees, so stick with discount brokers, or buy directly from the fund family itself.
- Don’t pay a sales commission to buy the fund. Loaded funds charge at least a 5% commission immediately upon purchase. So for the first year you would have to exceed 5% earnings just to break even. There are plenty of no load funds available that don’t charge any commission and outperform loaded funds, so stick with the no load funds.
- Buy index funds. Index funds expense ratios are a fraction of what regular funds charge to run the fund. These funds have no management which is why their fees are so low.
- Consider balanced funds as you age. Balanced funds consist of stocks and bonds, with the ratio usually being 60% to 40% stocks and bonds respectively. These funds offer a buffer against a volatile stock market and add income into the mix as well. They funds offer below average risk.
- Measure risk before you buy a fund. The beta ratio measures the risk associated with the mutual fund. For example, a fund with a beta of ratio of 1 offers average risk, while a fund with a beta of 1.5 offers high volatility and risk. You can use your favorite search engine and go to a discount broker site and use the tools on to help you decide what type of risk you are comfortable taking.
- Consider targeted retirement funds for retirement. These funds provide the asset allocation based on age and timeframe before retirement. They will have the actual year the investor’s retirement as part of the name of the fund. If you are not sure where to start, these funds really help.
- Read the Prospectus of a fund. The prospectus is loaded with information like the tenure of the manager, the holding of the fund and all of the fees associated with the fund. It is basically a bible for the fund. The tenure of the fund manager tells you how stable the fund is. If the manager has not been there long, it may not be a fund you should starts with investing.
- Review statements monthly. Reviewing statements monthly allows you to see if a pattern is emerging. If the fund continues to lose money it may be time to sell.
- Set up automatic investments from your bank account. Mutual funds require a minimum initial deposit for investment. This ranges from $3,000 to up to $10,000. Many fund companies will waive the requirement if you agree to set up monthly deposit installments linked from your bank account. Not only will you save more, but you do not have to meet the minimum entry requirements in most cases.
Investing in funds like any other investment requires research and careful planning. You don’t have to be an expert in mutual funds, but you do need to focus on the bottom line.