If you are looking to invest some of your money, Mutual Funds are an excellent investment.
Now come the tough part. There are thousands of Mutual Funds, so how do you decide which ones to invest in?
If you are new to investing, lazy or have trouble understanding investing, I suggest that you find a financial adviser. This can either be a CPA or you can go to a brokerage company like Raymond James, Edward Jones or Charles Schwab to name a few. No matter where you go for guidance there be sure that who ever you are dealing with is willing to take the time to explain your invest so that you can understand it. If they simply say “just trust me” get away from them as quickly as possible. You also need to be somewhat prepared as you look for your adviser. You should have a rough idea of what types of funds you want to invest in. There are basically 3 types of funds to invest in. Balanced, Foreign and Growth. There are other types, but these are the very basic ones and the ones that I am going to deal with in this article.
A Balanced Fund is a fund that is fairly well balanced in their investments between stocks and bonds. In most cases you can expect a Balanced Fund to have between 60-70% in stocks and 30-40% in bonds.
A Foreign Fund is a fund that has most, if not all of it’s investments in foreign countries. You can find funds with names like EuroPacific Fund, World Growth Fund or Asian Fund.
A Growth Fund is exactly what it sounds like. A fund that is focused on growth. There are Small Growth Funds which focus on investing in small businesses. These funds are more risky. You can make more money investing in them, but you can also loose more money. Then there are Mid Cap Growth Funds, which invest in mid sized businesses and finally your Large Growth Funds which invest in large businesses like Coca-Cola or IBM.
You should invest in each of these categories so you will be more diversified. If the market in the U. S. is struggling, Europe may be doing well. If Europe is struggling, the Growth Funds in the U. S. should help you. I realize not everyone will have enough money to invest in all of these funds. My suggestion is to begin with a Balanced Fund.
You also want to be sure to invest in funds that have been around a while. The longer a fund has been around, the better. For example, a fund that began in 1934 and is still around would have begun during the depression and survived World War II, the Korean War, the assassination of President Kennedy, the Vietnam War, the recession of the 1970’s the resignation of President Nixon. Well you get the picture, it has survived through a lot of turmoil. You also want a fund that has averaged at least 9% over the life of the fund, and obviously the higher growth the better.
Now you know what to tell your adviser. You want to invest in a Balanced Fund, Foreign Fund and a couple of Growth Funds. All of your investments you want to have been around for a minimum of 10 years and the longer they have been around, the better. Finally you want a minimum of 9% growth over the life of the fund. Your adviser should come back and suggest at least 3-4 funds from each category.
Now we come to some simple research that you should do. Get on the internet and go to “Yahoo Finance”. In the upper left hand corner there will be a box for you to type something into it and right next to it, it will say “GET QUOTES”. Type in the name of one of the funds that your adviser suggests, he most likely will also include a series of letters such as AMRMX, you could also type that in the box. The click “GET QUOTES”. The fund will come up and along the left hand side you will see several categories. The main ones that you want to look at are PROFILE, PERFORMANCE, HOLDINGS and RISK. As you look at each of these categories you will find important information.
PROFILE will give you a “Morningstar Rating” which rates how good the fund is based on a scale of 1-5 stars. You will also see the date of inception. For AMRMX, it has 4 stars and an inception date of 2-21-1950.
PERFORMANCE will show you how many years this fund has made money and how many years it has lost money. In this case it has made money 49 years and lost in 10 years. Any fund that averages around 75% or better is a pretty good fund.
HOLDINGS will give you an idea as to what this fund is invested in. In this case some of their investments are AT&T, Microsoft and IBM.
RISK will tell you how risky Morningstar thinks this investment is based on a scale of 1-5. In this case AMRMX has a rating of 1, which is very low risk.
One final thing you should research is the average growth over the life of the fund. The easiest way to do this is to simply type in the company that the fund is with. This will be the first word(s) in the name of the fund. In the example I am using, the fund is American Funds Mutual, so the company would be American Funds. When you get to the fund website, look for fund information. You usually have to look for a listing of all funds. Then find your fund and click on it. You can then easily navigate to find the average growth over the life of the fund. In the case of this example, through October 31, 2010, this fund has averaged 11.49% growth since then beginning of the funds 60 years ago! Obviously this is a good fund.
This may sound like a lot of work, but it is really easier that it seems. It is also important to have this knowledge as begin investing. If you begin investing in Mutual Funds early and wisely, you can easily become a millionaire or even multi millionaire.