Q&A: When buying mutual funds, what are the most important aspects to look at?

Question by ThatDude: When buying mutual funds, what are the most important aspects to look at?
Okay, I’m new to investing in funds.

I know a bit here or there, but I’m still learning. I don’t know enough to trust myself jumping into anything yet.

What I’m looking for is long-term stuff, like something for retirement. I’m 22 now so I guess it’s a great time to start.

What is the top parameters I should look for when browsing mutual funds? Like when browsing MorningStar I see NAV and Expense Ratios (I know what they are) but how do I know what is more important? Also, once I know what is important, how do I know if it’s good. I figured you probably want a low expense ratio, but what would you consider “low”?

I guess I just wanna know what to look for in numbers.

Best answer:

Answer by swenjj
look at the long term (10years or more) return of the fund, i like to compare it to others in the downturn years at the beginning of this decade

check the beta and deviation, they can show you how volitile the fund may be

make sure you know what sector it is in, to fit it in your asset allocation

check and see how morningstar rates it, i wouldnt buy into one unless its at least 3 stars, or is too new to be rated

expense ratio is huge

no load/load fund?

also, if it is in a taxable fund you may want to check the turnover, if they are turning stocks over and over it can affect your taxes

see if managment is new, long term results don’t mean a lot if the manager just changed

Add your own answer in the comments!




2 Responses to “Q&A: When buying mutual funds, what are the most important aspects to look at?”

  1. zyberianwarrior says:

    pends on what you are looking for in a mf. No load means just that you are not paying anything extra to purchase an MF (this is a must) the lower the expense ratio the better there are plently of great no load funds of under 1.00 the NAV is that days price but you want to sneak a look at the 52 week high and lows when looking at the NAV . Since you mentioned morningstar take a look at their classroom tutroing its free and you will learn a lot there.

  2. SmittyJ says:

    I’m not a big fan of actively managed mutual funds because I think most people can do a better job managing their own money by diversifying into individual stocks and bonds or simplying by purchasing index funds. Over 70% of all actively managed mutual funds underperform their benchmark so why pay management fees for underperformance?…it makes no sense…Having said that if you are certain that you want an actively managed mutual fund follow these guidelines.

    1. Look for funds that have outperformed their benchmark in both bull and bear markets

    2. Realize that the fund manager is more important than the name of the fund so once you find a fund that has consistently outperfomed make sure the fund manager responsible for the performance is still managing the fund.

    2. All else being equal, choose the fund with the lowest expense ratios and always opt for no load no transaction fee funds…there are plenty of good ones out there so there’s no sense in paying a fee when you don’t have to.