When shopping for a mutual fund, you want to feel confident that you’re making an informed decision in your investment choices. You may be wondering where to start, as thousands of options are available when you begin your search. To guide you, here are five ways to identify a quality mutual fund for your financial strategy.
1. Identify Your Goals and Risk Tolerance
Before you begin researching mutual funds, it’s important to identify your goals and risk tolerance to help navigate your choices. There are a few questions to ask yourself to determine where you stand, such as:
- Are you looking for short- or long-term benefits?
- How will you use the income from your investment?
- Are you comfortable with more risk, even with dramatic changes in your investment?
- Or, would you prefer to stay more conservative for slow-and-steady growth?
2. Look for the Fees
The company managing your mutual fund has to make money, too, so they charge their investors fees. Fees are not one-size-fits-all, making it essential to do your research to identify any front-end load, back-end load, or level-load fees.
This is how these three types of fees differ:
- Front-End Load Fees: This type of fee is paid from your initial investment when you purchase shares of a mutual fund.
- Back-End Load Fees: As the name implies, this type of fee is taken out when you sell your mutual fund shares.
- Level-Load Fees: Rather than being charged a fee when you invest or sell, level-load fees are charged annually and taken from the assets in your fund.
No-load funds also exist. However, other fees are associated with these funds to cover the operating costs. And, some funds charge 12b-1 fees that are included in the share price, so it’s possible that someone may not be fully aware that they’re being charged a fee.
3. Determine the Fund’s Management Style
As with any investment, you should do your due diligence before investing. Do as much research as you can to find out about the firm managing your mutual fund. Look at past performance, the length of time they’ve been in this business (five to ten years of experience is preferred), and their investment philosophy and management style. You want to make sure that this manager’s values align with your own, so that you can feel confident that your money is well-managed.
4. Make Sure the Assets Are Diversified
Take a look at how the mutual fund is invested. Is it invested in different industries and types of companies? If so, this fund is well-diversified and could be a great option for your portfolio. This part of your research will also give you insight into how well the mutual fund aligns with your values, depending on the types of companies owned.
5. Look at the Turnover Ratio
Beyond the types of investments, it’s also vital that you see how often investments are bought and sold in your mutual fund. A high turnover rate can mean that the management team is not confident in their investments. You want to look for a turnover rate of 50% or less, if possible.
Manage Your Investments with Southwestern Investment Group
Our advisors can help you choose a quality mutual fund for your long-term financial goals. We focus on a comprehensive view of your finances, keeping your best interests in mind. Contact Southwestern Investment Group today to schedule a consultation!
