How To Compare Mutual Funds

If you have decided to look into mutual funds with a view to investing, you will soon see that there are thousands of mutual funds. This makes comparison difficult.

The only sure way of doing this enormous job is by carrying out a comparison of the various mutual funds. Even if you make a decision to go to a professional financial adviser, you should still carry out your own comparison of mutual funds, so that you may follow what your consultant is saying, ask questions and even make recommendations.

There are several methods of comparing mutual funds' performance, depending on how much information you already have or how much investigation you are prepared to carry out.

At the first degree of investor knowledge, you could begin by selecting funds that meet the fee structure that you like, then paring out those that do not invest in what you like and then researching more thoroughly the two or three groups left on performance.

At the second level, you could start by selecting funds investing in stocks that you like, and then strip out the ones belonging to investment groups that have not performed well during the last few years

At the novices' degree, you could look in the annual performance lists, compare up to three year's results and decide on the investment groups that most frequently appear in the top five or ten on the list.

Let us look more intimately at the third mode of mutual funds selection. Start by searching on the Internet for a firm that ranks mutual fund groups by annual performance.

You have to choose how deep you would like to do here: check the top five or ten firms for the last three, five or ten years. Write down any names that appear in all or many of the years that you are studying. Take the top three most consistent, top performers. These investment companies make up your short list.

Now go to the websites of those companies and see which mutual funds they manage. Check if there are any that you like. Use such criteria as investment strategy and fees to make your selection. Note them down for every investment group.

Now go back to your investment company comparison site and look up the sectors of the mutual funds that you just chose. Did any of the selected funds attain a top place in the performance rankings last year or even a couple years running?

If so, you have your best funds list. If there are a few top ones, take into account spreading your investment over two or three funds to lower your risk.

If, however, they all did pretty badly, then you will have to go back to your original short list of classes and pick ten more mutual funds until you find two or three with a consistently good history of investment.

Once you have a short list of funds from your selected investment companies' portfolio of mutual funds, check out their fee structure. write notes and then create an appointment to visit an independent financial consultant, whose time you will have to pay for by the hour (one hour ought to be sufficient).

Do not go to an adviser who is attached to a bank or investment house or one who lives off commissions, because those commissions come out of your investment capital.

Owen Jones, the author of this piece, writes on a number of topics, but is now involved with the Mutual Funds Comparison. If you would like to know more, please go to our web site at Mutual Funds