Are you thinking about investing in a mutual fund? Before looking at the mutual funds available to you, it may be best to decide the mix of stock, bond, and money market funds you prefer. Before buying any fund, an investor must first identify his or her goals.
Here are some general points to keep in mind when deciding what your investment strategy should be.
Don't put your eggs in one basket. You have to spread your investment among mutual funds that invest in different types of securities. Stocks, bonds, and money market securities work differently. Each investment offers different advantages and disadvantages. Diversifying your investments may increase your returns over a long period.
The fund manager is the ultimate decision maker. He plays a crucial role in fund's performance. While selecting a mutual fund, you should look at the performance, experience, and tenure of your fund manager. It is important to have a look at the performance of other funds he is managing. Know what is his past track record.
Risk refers to the uncertainty associated with the investment. When you are selecting mutual funds, consider how much risk you are comfortable with. Check how close you are to retirement. If you are near to retirement, you can select a portfolio with very little risk. If you are in your younger age, you have the time to move with the market's ups and downs. You can choose a more aggressive investment strategy.
Look at your age
Younger investors may like to invest in stock funds. It is because they have time to wait out the short-term ups and downs of stock prices. For the long-term, they will get good returns. People close to retirement will not be interested in risky stocks. They will try to protect their money from possible downs. Choose an investment mix appropriate to your age.
Don't neglect inflation and its effects. Inflation is one of the chief enemies of all investors. This invisible force inexorably erodes both your purchasing power and the returns you receive on your investments as the prices of goods and services rise. It is important for you to know how to protect your savings from shrinking in value over time as a result of inflation. There are several types of mutual funds that can protect you from inflation in different ways.