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The concept of the mutual fund was born from the simple act of pooling money together. Since its inception in the 1920s, it has grown to become a multi-trillion dollar industry.Normal 0 MicrosoftInternetExplorer4
Today, small investors can make use of mutual funds to multiply their wealth, by making methodical investments based on a dollar cost averaging plan.
There are some mutual funds that charge a fee, referred to as a sales load. The fee is in most cases approximately 5% of an investor’s assets and it is paid to the person who sells the fund to the investor. Alternatively, there are mutual funds that don’t involve the sales load fee and the cost different clearly indicates which funds as the best option for an investor; it is always best to purchase no-load mutual funds. That said, it is definitely worth understanding mutual funds and how to invest them. Here are some items a potential mutual fund investor should look for:
1Find Out What The Expenses Ratio Is Of The Mutual Fund
Running a mutual fund costs money – the expenses involved, in addition to investing your money, also include pretty much everything that a conventional office requires to run its operations smoothly. The sum of these costs is referred to as the expense ratio. This means it is the cost of owning the mutual fund. As an investor you will want your funds to have the least possible expense ratio because the lower this figure is, the faster you will start earning money.
2Avoid High Turnover Rates
For mutual fund investors, it shouldn’t just be about getting the highest returns, but rather the highest returns after taxes. There is actually more money to be made from a fund which offers 10% growth and no turnover than from one which generates 15% growth and a turnover of 100%+. All of this has to do with taxes. Of course, this does not apply for tax free accounts e.g. the Traditional IRA, Roth IRA or the 401k, or for investments that are not profit oriented. For any other type of mutual fund, it is important to consider the turnover rate. This is the portfolio percentage that is purchased and traded each year. Avoid funds whose portfolio turnovers are 50% or more – they are the tell-tale signs of investment managers who aren’t too sure about their investment plans.
3The Mutual Fund Management Team Should Be Experienced and Professional
Before going any further with any portfolio manager you should carry out a thorough background check on him or her to establish what track record he/she has. You may be surprised to learn that your manager has a skimpy track record or even a history of losses in a stock market whose overall performance was healthy. If this is the case you shoul...