What You Should Know about Mutual Funds

Today’s guest post is from Mark at Investment Quest.

Mutual funds are a great way to get exposure to stocks. They are diversified, meaning there a lot of stocks in the portfolio so if one tanks the downside is limited. The same happens with a winning stock and gains to though. If you are in for the long haul, which you should be when in mutual funds there are some basic things to pay attention to. A fund that is hot for only one year might not be the next year. Was it a real-estate fund that had a great couple years that will probably pass? Past performance is no indication of the future but you will want to see how the fund has performed against the index it tracks.

Here are some of the most important things. Pay attention to how much it costs! They can really get you with commissions and fees. Stay away from 12b-1 fees. Expense ratios to assets above 2% are not necessary. Remember you will have to pay taxes on top of any sales commissions and fees. Buy a no load (commission free) fund. Vanguard and Fidelity are good no load fund companies.

The only time I would pay for commissions is if they have been beating the S&P 500 or the Wilshire 5000 and their index they track for years and I mean killing it. Sometimes its ok to pay up but if they barely beat the averages pass. You may have been better off buying the index.

Fidelity’s Latin America Fund (FLATX)has been a good performer, up 49% this year. The investing climate in Latin American countries is more favorable in some instances than in the U.S. Argentina is growing three times faster than the U.S. and has no debt and a sound financial industry.

Remember to watch out for commissions when you purchase and also when you sell. So, don’t forget your opportunity cost or the next best investment that you could be missing. Don’t expect history to repeat in cyclical like industry funds and take advantage of dollar cost averaging when necessary. You can’t buy ETF’s without commissions. Also, if your interested join The American Association of Individual Investors (aaii.com). They mail out a paper back book of the best mutual funds every year and are a great resource on mutual funds and ETF’s via their monthly newsletters.

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