Financial Focus/When Choosing Mutual Funds, Look for a “Good Fit”

submitted by Edward Jones

It’s easy to invest in a mutual fund. In fact, with more than 8,000 funds available, you’ve got an abundance of choices. But as a mutual fund owner, your investment philosophy should not be “the more, the merrier.” Instead, look for the right funds - those that meet your individual needs.

How can you make sure you’re choosing those funds that are appropriate for you? For starters, look for funds that match your own goals and risk tolerance. If you want your money to grow so that you can meet long-term objectives, such as college for your kids or a comfortable retirement, then you may be interested in growth-oriented funds, which typically contain stocks of medium and large companies. You’ll need to be aware, however, that the prices of stock funds will move up and down every day. As a stock-fund investor, you have to accept this risk to your principal in exchange for potentially high returns.

On the other hand, if you need cash flow, you might want to consider income funds, which may be made up of bonds and dividend-paying stocks. If you own income funds, your principal may not fluctuate as much as it will in growth funds. But income funds, particularly those made up mostly of bonds, run another risk - the risk of losing purchasing power to inflation.

As you can see, different types of funds carry different benefits and different risks. That’s why you may want to build a diversified portfolio of growth, growth-and-income and income funds.

What else can you do to research suitable mutual funds? For one thing, make sure you truly understand a fund’s history and its management. When was the fund started? Who manages the fund? How long have they been in their position? What’s their investment style? Once you know the answer to these questions about a specific fund, you’ll be more comfortable with owning that fund, and you’ll be less likely to be surprised at any moves that the fund’s managers make.

How about a mutual fund’s performance? Shouldn’t that be a key factor in choosing a particular fund? You’d certainly think so if you saw any of the countless advertisements that tout a given fund’s return. But underneath the large print showing a fund’s performance, you’ll read this message: “Past performance does not guarantee future results.” This isn’t just a legally required tag line - it’s the truth.

And yet, a mutual fund’s past performance could be important to you, because it shows that that the fund management has the discipline and a success rate that long-term investors need. Just keep in mind that things can change: A successful portfolio manager could depart the fund, or the economic climate could worsen for the fund’s holdings, or the fund could alter its investment philosophy.

Ultimately, in choosing mutual funds, you should consider a number of points before investing. Pick funds that meet your goals and investment personality, look for managers whose investment style appeals to you, seek out funds that invest in vehicles with which you’re comfortable, and, most importantly, discuss your decisions with an objective investment professional.

By following these few basic guidelines, you might not land this year’s “hottest” funds - but you’ll boost your chances for long-term success.

This article was submitted by the financial representatives of Edward Jones in Hagerstown: Greg Garner, 301-733-9465; Dave Walker, 301-766-7300; and Joan Bowers, 240-420-8514.