Financial Zip

Investing in mutual funds can be a little confusing. So to invest in mutual funds the best site to research them on is Morningstar.com. So you have no idea where to start you want to choose a good one but you have no idea where to look. I will guide you step by step how to invest in the right mutual fund or at least point you in the right direction.

Morningstar is extremely helpful in helping you find mutual funds. On of the best things about Morningstar is that it has a rating system that can be really helpful in picking the right funds. 4 and 5 star ratings are the funds you generally want to look for. When you log into the website you might need to register but it’s free. On the first page there is a lot of information but a good guide to follow is to find highest rated Funds or top performing funds along the right hand side.

The funds are broken down in to different types of caps (small, mid, large, growth, etc…) or based on yearly performance. When picking a performance fund the longer the better.

So now that you have picked a mutual fund to invest in or to at least look at. You want to look at some critical category’s when looking to buy a mutual fund.

Category

Mutual fund category is important because it really sets up what kind of returns you want to get. There are generally types of funds

1. Stock – a large percentage of the fund is invested usually in US stock. These tend to have a big upside but also have some risk built in with them. The following 3 are types of stock funds.
2. Value Funds - Mutual funds that invest in stocks that generally have fallen out of favor in the marketplace and are often priced much lower than stocks of similar companies in the same industry.
3. Growth Funds -A mutual fund that tends to be made up of stocks of companies that present the potential for superior growth. These funds tend to offer greater return potential than growth and income funds, but are typically more risky.
4. International Funds -Mutual funds that invest almost exclusively in securities issued by companies located outside the United States. International funds may be susceptible to risks such as currency fluctuation and political or economic changes.
5. Bond - a large percentage of the fund is invested in all types of bonds a little less risky and better if you are more of a conservative investor
6. Money Market Funds – Theses funds invest in primarily treasury securities these are very safe and offer a very conservative investor some protection from downside risk

In Morningstar you can see what kind of fund it is by the percentage and allocated to it. The nice thing to is that if you look under Portfolio analysis it will break it down for you and even what the top companies it holds.

Expense Ratio

Expense rations are important they will tell you what percentage the fund pays it self for administrative fees and expense ratio represents the percentage of the fund’s assets that go purely toward the expense of running the fund. You generally see about 1.5% anything from 1.5% and down is generally good in terms of cost to you.

Loads

Front in load is the sales fee you pay up front. When you see this coming you know some money is going to go flying out your pocket. So see if the fund has a front load.

Back-end load. Some funds appear to be no load funds but are really back end load funds. It’s kind of a sneaky way of hiding a fee so when you sell your fund. Wham bam thank you mam they take your money. Now some back end loads have a time element that as long as you keep it 5 years there is no load, but if you sell it before then you get hit. So be sure to look and see if the fund has a no-load, front load or back load. It can save you some money if you do.

Manager Tenure

Morningstar will list the managers of the fund and how long they have been managing it. With experience generally comes better performance but not always so be sure to check what the 5 year return is.

5 year returns

The 5 year returns for a mutual fund tell you how the fund is being managed. What you are looking for in this category, is it beating the market.

Morningstar is very impressive in its overall coverage of mutual funds. If you want to find information on a fund, that is the place to go. The main thing with mutual funds you want to have a good performing fund over a 5 year period and you want the loads and the expense ratios to be as small as possible.

So investing in mutual funds is made a lot easier by Morningstar and the resources they have to help you the investor how to navigate the difficulty in picking a mutual fund.

This article is intended for educational purposes and is not specific investment advice. Before investing in the stock market please consult a investment professional.