September 16, 2011

Mutual fund investing is one of the easiest ways to get into the market.  But whether you are a seasoned investor or just starting out, there are some important things you should know when it comes to choosing the right mutual funds.

The Money-Guy Basics:

  1.  Realize that your investments need a little T.L.C.  No matter what investments you make in life, it is never wise to stroke a check and walk away.  If you work with an investment advisor, he or she is hopefully staying on top of things for you.  If you are a “do-it-yourselfer”, however, it is extremely important to keep a close eye on your funds and any important changes that occur.  For example, fund managers may change, trends may change, the size of a company may change, and the world itself is constantly changing.  Keep abreast of any events that might impact your fund or portfolio.
  2.  Understand how your age, goals, and risk tolerance should impact your investment choices.  It is important to have a grasp on what an appropriate allocation is for your current situation.
  3. Use an effective Mutual Fund Screener.  Our preference (and what we use at Preston & Cleveland Wealth Management) is Morningstar, which offers a free version of their screening tool as well.  In fact, if you are a Premium Member, you have access to our webinar that actually walks you through a risk questionnaire, assigns you a model portfolio based on your answers, and shows you step-by-step how to use Morningstar’s fund screener.

Some key things to look for in your search:

  • Asset class – sort by class to find the best funds for each piece of your allocation puzzle
  • Loads and internal expenses – pay close attention to the fees and share classes of funds.  Loads, or commissions, are what the people selling the product receive.  No-load funds are paid for in another way (i.e. hourly, Assets Under Management, etc.).  The internal expenses are what pay the managers of the funds for running the company.
  • 1, 3, 5, and 10 year average performance – these numbers tell you how a fund performs during good times, bad times, and on average.  We typically like to choose funds with at least a strong 5-year history, but it is important to realize that the track record of the manager can be equally as important.
  • Category average – a unique feature of Morningstar is that it breaks down the performance of a fund compared to other funds in the same category.
  • Fund Score – after doing the above research, you may very well end up with 20 funds.  To further filter your results, look for something called the Fund Score.  This allows you to fine-tune a list of funds by re-ranking according to criteria that are most important to you.  You can select up to 8 criteria and assign weightings to each in order to generate your own custom tailored list.

A couple of other notes:

-To make sure that you are picking the best funds, stay focused on what you are looking for.  One fund or a number of funds in different asset classes?  Growth or value?  Know ahead of time what you want the fund to accomplish.

-If you are still having difficulty narrowing down, research the website of the fund companies to see what fits with your personal management philosophies.

-It is a good idea to revisit allocations about twice a year.  This doesn’t mean you have to make changes, but make sure you are staying up-to-date with any pertinent changes.

As always, we would love to hear your questions and comments either below or on our Facebook page.  Also, check us out on our new YouTube channel for some additional Money-Guy advice!



Most Recent Episodes

Financial Advisors React to Caleb Hammer’s CRAZIEST Financial Audits!

In this episode of the Money Guy Show, Brian and Bo sit down to react to a compilation of Caleb Hammer's CRAZIEST financial audits! You don't want to miss this one! Enjoy the Show? Sign up for the Financial Order of Operation (FOO) Online Course! Sign up for our Know...

The Best and Worst Types of Life Insurance!

No matter how much you know about finance, you’ve definitely heard about life insurance: maybe from commercials pitching it as something to buy your baby, or a family member or friend that got into the industry. Is life insurance worth getting or something you should...

How to Recover From 4 HORRIBLE Financial Mistakes!

In our nearly four decades of combined experience managing money, we’ve seen some horrible financial mistakes - here are the four worst we’ve seen first-hand and what you can do to avoid making a similar mistake. In this episode, you’ll learn: The worst financial...

New Data: Active Investments Are Better Than Index Funds?

A new research paper is out that claims active funds from two large providers, Vanguard and Fidelity, beat their own index funds. Are active funds beating index funds? What’s going on here? Let’s find out! For more information, check out our free resources...

Why Americans Are Actually Broke! (2023 Edition)

Americans might be bad with money, but you don’t have to be. In this episode, we discuss the underlying reason why Americans are so bad with money and how you can do it better. In this episode, you’ll learn: Common financial pitfalls you should avoid Practical steps...

Build Wealth With the 3 Bucket Strategy! (By Age) 2023 Edition

We believe there are three distinct taxable buckets you have the option of investing in for retirement. We’ll talk about how to balance those buckets by age and show a case study by age that shows what your buckets may look like! In this episode, you’ll learn: The...

Debt Ceiling Crisis: World’s Financial System at Risk?

Should you be worried about the debt ceiling crisis? Although political leaders have so far been unable to come to an agreement, we'll tell you what history says will happen and what it means for your finances. For more information, check out our free resources...

Financial Advisors React to INSANE Money Advice on TikTok!

Is financial advice on TikTok all bad or is there some good advice out there? Check out our brand new TikTok react show where Brian and Bo give their honest reactions to trending financial advice. Enjoy the Show? Sign up for the Financial Order of Operation (FOO)...

How to Save Thousands of Dollars in Taxes in 2024

Tax season is over for most of us, but that doesn’t mean it’s time to stop thinking about your taxes! Planning out your tax strategy in advance can save you time and money on your taxes. In this Q&A, we’ll discuss the line items on your return to pay attention to...