While I usually write specifically about stocks, I'd like to mention a few things about mutual funds. As most people know, a mutual fund is a basket or group of stocks that a mutual fund manager selects and owns in whatever fund he or she might run. Now while I like mutual funds because by their very nature they offer investors diversity (because instead of owning one stock, a person can own a bunch of stocks), it is important for people to research what funds might be best suited for the investors specific needs...such as a growth fund or a conservative fund.
When deciding on which funds to own, an individual needs to look at the historical returns of a fund, as well as the expense fees that are associated with the fund. The expense fees come in two ways, either with the fund having a "load" on it, and also in the form of what the fund managers charge investors to own their fund. A load is a sales charge that some investors have to pay for the "right" to buy the fund. Now here's the catch, not all investors HAVE to pay these loads. If someone wants to avoid paying loads, then they need to make sure they use a financial firm (like a Fidelity - which is where I manage all of my clients money) that doesn't charge loads on the funds that they offer on their platform. Loads are not a necessity, but unfortunately most investors don't read the fine print and end up paying fees that range from 2% all the way up to 5%. These fees eat up the potential returns a client might make and therefore need to be avoided if possible. For example, if someone were to invest $10,000 in a fund that charges a 5% load, then before the money is even invested, the individual would be starting out with $9,500 instead of the $10,000 that they started with.
When researching what funds to own, an investor should use websites such as Morningstar.com (which is a free site), where they can type in a fund name at the top of the page, and the fees and performance of the fund are shown. For example, if a person were looking to invest in a moderate mutual fund (which is basically a fund that is neither extremely aggressive or conservative), they could type in a fund such as the FPA Crescent fund (the symbol is FPACX) and they could see how well the fund has performed over the past 1-3-5-10 years.
Another important thing to be watchful of, is to always know WHY an advisor or stock broker might suggest a certain fund over another. To put it a different way, if someone is working with a Hartford representative(which is an investment and insurance company), then they should question why they are put in a Hartford fund as opposed to another fund that has lower fees and better performance. To see what I'm talking about, a person could go to the morningstar website and type in the Hartford Balanced Fund (symbol HBAAX) and compare that fund to the FPA Crescent Fund (FPACX) and see that the FPA fund is a much better fund when you look at the expenses of the two as well as the performance of the funds.
Please know that I'm in no way trying to tell anyone that they should own this fund or that fund, or even that they should work with a specfic financial firm (whether it be Fidelity or Raymond James or Hartford) what I'm saying is that a person looking to invest their money should always ask the question "why"? They should always wonder is this the best fund for me to own in order to accomplish whatever their investment goals are...
I know this is a long post, but it deals with something that is important and needs to be addressed.
Food for thought
In full discloser, the funds I've mentioned above to do represent a recommendation to buy one and not the other, as that decision needs to be made after consulting a financial representative...basically what I've talked about is that not all mutual funds are the same. As teachers say, you need to do your homework!
