How to choose a mutual fund?

Question

Can professional investors tell me how to choose a mutual fund, I have never bought one before!
1. Where should I start?
2. What should I look for?
3. Is beta or standard deviation important?

Thanks!

Answer 1

The first step in choosing a mutual fund is investing in what you know, do your research as to which markets you would like to invest in, for example, mutual funds in the construction field have done well in the past 5 years because of the rise in construction,but the trend has slowly begun to slow down.
Go here to look at some funds:http://biz.yahoo.com/p/top.html

Second, get yourself familiarized with the different terms that you need to know
http://www.fool.com/school/mutualfunds/basics/choosing.htm

Look for a fund that has a low expense ratio, the lower the expense ratio the more money is given out in dividends. make sure you check out the consistency of the returns in the fund, information on the manager and the level of experience. You want someone who knows what they're doing.

You can check www.morningstar.com for the ratings of different mutual funds.Choose a fund with a 4 or 5 rating

Look at how the company diversifies its allocations. Make sure that the fund diversifies its funds in different fields and that it doesnt keep all its "eggs in one basket"

Most importantly research and familiarize yourself on how mutual funds work http://money.howstuffworks.com/question727.htm

As far as beta or standard deviation http://help.yahoo.com/help/us/fin/funds/funds-06.html, make sure that if you're looking for a stable find that it doesnt have a high deviation because the higher the deviation the more volatile the fun has been

Check the morning star risk, you can check yahoo or morningstar.com and try to figure out which risk level your most comfortable with. Remember nothing ventured nothing gained, but remember that the higher the risk, the more dangerous the game gets..you might want to take a risk tolarance quiz to find out what your risk level is http://moneycentral.msn.com/investor/calcs/n_riskq/main.asp

Best of luck!

Answer 2

The short answer is invest in indexed funds first until you learn... You actually might want to put money in CD's first.

Here's what you need to do

Step 1.
First decide what kind of brokerage you want to work with. You can open a brokerage account in your bank, with a large full service brokerage or an internet brokerage. I find when I get professional help, they often want to sell me things that are better for them then for me…. So I use www.scottrade.com because it’s cheap and easy with low frills. I do my own research and make my own investments. But any low cost internet brokerage service is fine.

Step 2. get a subscription to Barrons or Investors Business Daily…

Step 3. If you have some money to invest, put it in 3 month CD’s right now. First the market is unstable and second you have some homework in Step 3 to do before you do any investing.

Step 3. Go out to the internet and search on the following subjects. Get familiar with the concepts.
Asset allocation
Roth ira vs ira
Large med small cap
Value vs growth
Indexed mutual funds
ETF
Sector funds
Bonds CD
International funds
Fundamental analysis
Technical analysis


Step 4 go to http://clearstation.etrade.com/ (it’s a part of e*trade which is also a low cost brokerage) and sign up for a free account. Play around there by looking at graphs and fundamentals.
I think it’s also a good idea to pretend you have $10,000 and start buying and selling on paper. Keep track of where you are each day for a month… It’s a lot easier to lose play money then real money….


Always strive to do your own research… you’ll find everyone sounds like an expert so take everything people tell you with a grain of salt. It’s not easy in the beginning but soon you will be the expert.

Don’t get involved with futures, currency, options (unless you get stock options at work), commodities, annuities and other derivative type investments at this time.

Good Luck

Answer 3

Beta and std dev are both important.

Your best bet is to pick a mutual fund that mimicks an index. I.e., you can buy a mutual fund that mimicks the S&P 500.

When you pick a mutual fund that mimicks an index, the single most important factor is the commissions and fees. Reason: the beta should be 1 and the returns would be expected to equal the index. The thing that will really drive your total return down is the commissions and fees.

Commissions and fees, commissions and fees!

If you are not mimicking an index, there are many other things to consider, not the least of which is the quality of the fund manager. Unless there is a particular sector you know you want to hold more than others, I would just mimick an index. Reason: over the ling-run, history has shown that the market will return 13% (that would be the DOW). So, run with that and minimize your fees.

Anything else is pure speculation.

Don't forget to add risk-free products to optimize your sharpe ratio!

Answer 4

Oh someplace like MorningStar is good.
Most people need to choose a fund that can grow, often a growth fund, which usually have higher beta's. Thats normal.
I like a fund group which I will name, because they have a good track record, a reasonable minimum, online or telephone access including switching, an IRA set up, and a monthly deduction if you choose it. Also No Load, no Redemption charge is the way to go.
I scanned a lot of funds which I suggest you do also, using online resources. I settled on the green/ethical sector, which has fund that stay away from volatile and nasty sectors. Within that sector I settled on PAXWORLD group, that was No-Load, has a low min, an IRA, and monthly deduction.
Look around, but at a minimum you need:

1/ good track record
2/ No load, no or lo fees
3/ No redemption charges
4/ Money fund in group, to switch into for bad times
5/ IRA with reasonable fees
6/ Online access
Optionally, monthly deductions

Now set about doing the homework, often called "DUE DILIGENCE".

Good Luck

Answer 5

i think that you have to know what you are looking for. income? growth? tax shelter?

you can buy a mutual fund that will cover just about anything that you want.

you can buy a mutual fund that is styled to look like the Fourtune 500, you can buy "ETF" exchange traded funds, that specialize in one very narrow area of investment.

I hope you like to read, you can spend a whole lifetime studying where to invest. it is all a gamble, but you can make a big bundle.

right now i like american funds" investment company of america" (aivsx) T price rowe otc(otcfx)

just for fun the exchanges traded fund for food service is PBJ and the the exchange traded fund for Green energy is PBW

Answer 6

I researched some before I started. I chose one that I could invest small in and add to every month. It also re-invests any earnings which help it to grow. Look up the moneypaper website.

Answer 7

Get an IRA, better for taxes and you let the professionals do the calculations.

Answer 8

good question, i'm interested too