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If you are having a terrible time
picking the "perfect" mutual fund, it's probably because you're approaching the
search from the wrong end. Most people get caught up in reviewing the past performance
data, dividend histories, and fund expense ratios of several hundred mutual funds before
they've even determined their objectives. "You should begin with figuring out where
you want to go and how much time you have to get there - before you even begin to pick the
vehicle to take you toward your goal," says investment planner and consultant Don
Trone. When choosing a mutual fund investment, follow these four steps:
(1) Determine the length of time your money can be committed, and what rate of return is
needed to achieve your objective;
(2) Choose the appropriate asset classes to meet your goal (e.g. stocks, bonds);
(3) Decide how much of each type of asset should be in the portfolio (e.g. 60% mid-cap
stocks, 40% corporate bonds); and finally
(4) Determine what investment styles should be used within each asset class (e.g. growth,
capital appreciation, value).
After you have narrowed your search by taking all of these steps, you are ready to choose
the specific mutual fund or funds to invest in. Then, the performance data, etc. may be
helpful in choosing between two or three very similar funds.
In the end, your portfolio's performance will be far more a result of applying steps 1-4,
than which specific funds you choose.
Michelle H. Wilbers, a noted expert in
financial services for women, is a Registered Investment Advisor and owner of Women's
Financial Services, a company
dedicated to providing women with sound financial advice. Women's Financial Services does
not provide legal or tax advice. You should always consult a qualified professional for
advice regarding your particular situation. |
