Choosing the right investment fund doesn’t have to be overwhelming and confusing. Click here to learn how to find the right one for you and your family.
Are you thinking of investing in a mutual fund? Not sure where to start or which investment fund is best for your needs?
In this article, we’ll cover everything you need to know about investment funds and finances, so you can pick the right one for you and your family.
Let’s take a look!
How to Choose the Right Investment Fund
Selecting an investment fund seems stressful, but it’s pretty easy if you go about it the right way. Here are our top tips that will help you pick the right investment fund for you.
Identify Your Goals and Risk Tolerance
The first step in picking an investment fund is knowing what you’d like to accomplish. Do you care more about current income or do you have long-term capital gains in mind?
There are many mutual funds available to investors, so identifying your goals is key to cutting back on your options.
Beyond identifying goals, you need to figure out your own personal risk tolerance. Are you okay with dramatic swings in your portfolio’s value or are you a business owner who needs the comfort of more conservative investments?
Risk and return are related to investments, so you need to balance your desire for returns with the risk you’re willing to tolerate.
Think About Your Timeline
How long do you plan on holding onto your investment? Do you think you’ll need to liquidate your investment in the near future? If so, you should know that many mutual funds have sales charges that can cut into your return.
To avoid these charges, you should aim for an investment horizon of five years or more.
Consider Charges & Fees
Most investments come with associated fees that you should know about before picking one.
Some funds will charge a load fee, which you either pay at the time you buy the fund or when you try to sale your investment.
The front-end load fee is what you pay out of the initial investment, and the back-end fee is what you’re charged when you sell your shares.
These charges can range anywhere from 3% to 8.5%. No, load funds don’t charge either of these fees, but they do have other fees that can be very high.
When reviewing an investment, always make sure to review the management expense ratio, as this will help you determine what your return would be at the end of the year.
Evaluate Any Portfolio Manager Options
When picking a fund, it’s important to research both the fund and the portfolio manager. Here are some questions you should make sure you ask when reviewing a fund’s previous performance:
- Were the fund’s results consistent with general market returns?
- Did the returns vary dramatically throughout the year?
- Was there high turnover or larger tax liabilities?
- What do I need to know about personal capital vs betterment?
The answers to these questions will give you insight into how this portfolio manager performs, and tell you more about turnover and return with this fund.
Final Thoughts on Choosing a Fund
Knowing how to pick an investment option is an important part of building your portfolio.
By following the tips in this article, you can pick the right fund for you, and start making money!
Is this your first time choosing a fund?
Have any other questions? Let us know in the comments!