Do you have a 401K? Do you use an asset management to manage your 401K? You probably at some point of your investment you might want to pick mutual funds as part of your portfolio mix. There are many articles articulating what you need to watch for picking a mutual fund. Here I am going to list just a few things that are easy to understand and make common sense:
1. Management Cost: Mutual fund management costs money. It takes people, office, operating expense to run a mutual fund. The cost of management, or expense ratio, if not managed appropriately, can make a great investment portfolio end up losing money. Exam the expense ratio on mutual fund profile page and prioritize the one with low expense ratio.
2. No-load vs loaded mutual fund: The difference between loaded and no-loaded is the fees paid to the person who sell you the mutual fund, which can be very high and eats up all your returns. The rule of thumb is to not purchase load mutual fund because you have many no-load mutual fund options and should not pay for a commission just to make purchase.
3. Look for manager tenure: At the end of the day, manager of mutual fund makes the majority decisions in portfolio mix. Comparing the past performance without a consistent management does not provide a clear direction on future performance. Look for consistently perform in returns as well as managers helps to forecast future performance.
4. Know the underlying stocks in mutual funds: This will help you to know what mutual funds you own and what diversification you are managing. For example, one mutual fund heavily invest in high tech and another one in online etailer can help you to diversify your investment.