subject: Picking The Right Mutual Funds Will Double Your Income [print this page] How do you decide which are the best funds to invest into? I know they say that past performance is no guide to the future but what is the best way to analyse which are the best funds?
Instead of building something or offering insurance, the fund is meant to invest the money in a certain way. You are buying a share of the mutual fund itself, not the investment that the particular fund owns. You investment will be a mirror image of the account, minus all the overhead fees associated with the account. This leads you to understanding Net asset value of your account. If you are going to sell your mutual fund shares, you will receive the value of each share based on its current value. You can also choose to buy more and you can usually do so on a daily basis, but you will have to check with the mutual fund manager. These shares are not traded like stocks are traded. At the end of the trading day, the value of the funds in the account are tabulated. This leads to the account being revamped each day.
This is essential in understanding what a manager is actually doing and if their processes are robust. It is in the quantitative (the numbers!) analysis where most investors lose fortunes. Quite often you will see a fund shown as being top over one year, two years, three years and five years. An investor at that point might think they now have a fund that is good over the short, medium and long term. However they could be about to make a huge mistake. This fund could well have had a large spike in its performance over the last few months. They could have had an exposure to oil for example, and the fund might have a rocketed short term performance.
As these instruments are are considered for long-term investments, you should be clear and knowledgeable about the market segment of your investment company. Examine in what economic segment or industry is the money being invested and what are future prospects of that industry. Many companies provide the opportunities of investment and there are several types of mutual funds. Index funds, exchange traded, balanced funds, diversified equity funds and debt funds are just few in the long list. Now which one is best for you depends on your reasons, perspective and goal of your investment.
It is also worth assessing how much risk a fund is taking to achieve an objective. If a fund returned 50% in a year by taking a risk of 8 (crude measure I know) and there was a fund that took a risk of 6 but returned 48%, which would you choose? Which is offering the best value? The downside risk is much greater yet there is little out performance. Risk is all about the potential for loss and potential for gain. They are in equal measure. A good investment IFA will be able to assess risk via a range of processes such as (bit of science now) standard deviation and Sharpe ratio for example.
A good mutual fund advisor should check in with you every six months. You will probably get monthly or quarterly statements about you account, but your fund advisor should contact you every six months and go over those statements and see if you have any questions. And do not be shy to ask any questions you have. It is your money and you need to oversee your advisor. Your advisor needs to encourage you to sit down with him on an annual basis. At this meeting you should discuss with him not only the investment results, but also what your investments goals are now. Most likely they will not be changing every year, but there will be times that your plans have changed. And your investment advisor needs to be aware of what changes on going on in your life that might affect your
