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Mutual Funds: Picking A Mutual Fund
You can buy some mutual funds (no-load) by contacting fund companies
directly. Other funds are sold through brokers, banks, financial
planners, or insurance agents. If you buy through a third party, you may
pay a sales charge (load).
That said, funds can be purchased through no-transaction fee programs
that offer funds from many companies. Sometimes referred to as "fund
supermarkets," these programs let you buy funds from many different
companies. They also provide consolidated recording that includes all
purchases made through the supermarket, even if they are from different
fund families. Popular examples are Schwab's OneSource, Vanguard's
FundAccess, and Fidelity's FundsNetwork. Many large brokerages have
similar offerings.
What to Know Before You Shop
Net asset value (NAV), which is a fund's assets minus liabilities, is
the value of a mutual fund. NAV per share is the value of one share in
the mutual fund, and it is the number that is quoted in newspapers. You
can basically just think of NAV per share as the price of a mutual fund.
It fluctuates everyday as fund holdings and shares outstanding change.
When you buy shares, you pay the current NAV per share plus any sales
front-end load. When you sell your shares, the fund will pay you NAV
less any back-end load.
Finding Funds
Nearly every fund company in the country also has its own website.
Simply type the name of the fund or fund company that you wish to learn
more about into a search engine and hit “search.” If you don’t have a
specific fund company already in mind, you can run a search for terms
like “no-load small cap fund” or large-cap value fund.”
For a more organized search, there are a variety of other resources
available online. Two notable ones include:
The Mutual Fund Education Alliance is the not-for-profit trade
association of the no-load mutual fund industry. They have a tool for
searching for no-load funds.
Morningstar is an investment research firm that is particularly well
known for its fund information.
Identifying Goals and Risk Tolerance
Before acquiring shares in any fund, you need to think about why you are
investing. What is your goal? Are long-term capital gains desired, or is
a current income preferred? Will the money be used to pay for college
expenses, or to supplement a retirement that is decades away?
Identifying a goal is important because it will help you hone in on the
right fund for the task.
For really short-term goals, money market funds may be the right choice,
For goals that are few years in the future, bond funds may be
appropriate. For long-term goals, stocks funds may be the way to go.
Of course, you must also consider the issue of risk tolerance. Can you
afford and accept dramatic swings in portfolio value? If so, you may
prefer stock funds over bond funds. Or is a more conservative investment
warranted? In that case, bond funds may be the way to go. (To learn
more, read Analyzing Mutual Fund Risk.)
The next question to consider include “are you more concerned about
trying to outperform your fund’s benchmark index or are you more
concerned about the cost of your investments?” If the answer is “cost,”
index funds are likely the right choice for you.
Mutual Funds: What Are They
Mutual Funds: Different Types Of Funds
Mutual Funds: The Costs
Mutual Funds: Picking A Mutual Fund
Mutual Funds: How To Read A Mutual Fund Table
Mutual Funds: Evaluating Performance
Mutual Funds: Conclusion
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