By Neal Brown
We have all heard the advantages of investing in a mutual fund
over trying to pick individual stocks. First of all mutual
funds hire professional analysts that are market experts and
devout many hours of study to the various stocks. Unless you
want to devout a large portion of your free time to the study
of the financial reports, you probably wonít have as much
information to make a decision as a mutual fund manager.
Then there is the well documented advantage of
Risk is reduced by holding several non correlated investments.
Put simply, some go up, some go down and combined, the return
levels off the fluctuations, or risk.
Finally, a mutual fund offers smaller investors a chance to
invest in small increments rather than having to save a large
chunk of cash to purchase 100 shares of stock.
Given the above advantages, itís no wonder that mutual funds
have become a very popular form of investing. Now there are
thousands of mutual funds to choose from, so how does one make
a selection? Here are a few tips:
1. Do not be seduced to jump on the recently performing best
fund. It may seem like the safe and rational thing to do, but
like individual stocks, you want to buy low and sell high, not
buy high and pray for more growth.
2. Even good funds may not be able to overcome the force of
overall market. You should be looking for funds that can
the broad market without increasing risk. Each fund has
risk parameters that it is required to follow. Read the
prospectus closely to understand what these are.
3. Limit the number of funds that you own. Unless you are
trying to simply achieve the same returns as the broad market,
diversifying into many mutual funds will not reduce your risk
or increase your return by much.
4. Funds that become too popular and too big tend to slip in
performance. There are several reasons for this.
Find more valuable mutual fund resources at
One final point to keep in mind is that the type of fund will
totally depend on your investment objectives. There are
funds that are designed for your objectives be they
income, growth, funding the kids college, etc.
About The Author: Neal is an active investor and has an MBA in
financial management. For more information see