Many types of mutual funds are available. The fund you select should reflect your personal investment objectives. Our investment advisors can help you determine your investment objectives and select a mutual fund that matches them.
When determining which fund is best for you, there are four main things to consider: the history of the fund, the current management of the fund, the philosophy of the fund and the fees and risks associated with the fund.
First, many investment companies, banks and other financial institutions sell mutual funds. You may want to consider whether the company or funds has an established history of making good investments and achieving a satisfactory level of returns.
Second, the management team of any fund has a direct impact on the success of the fund because their decisions determine what securities are bought and sold. Index funds that track a benchmark such as the Standard & Poor's 500 Composite have no direct management and therefore move synchronously with their indices.
Third, you many want to invest in funds that focus or specialize in a particular industry. Other funds, such as those that invest in the Far East, have a regional focus. You may also wish to invest in funds with a particular philosophy, such as protecting the environment by investing in 'ethical' or 'green' funds. Every sectoral or geographic or philosophic specification for a fund limits managers' ability to invest and, therefore, adds either risk or reduces potential gains. However, with careful construction, a portfolio of specialized funds can outperform broadly diversified funds.
Fourth, you should consider what fees the company charges for managing your money. Funds are usually sold on a load or no load, no commission basis. A fund with a front-end load means that you are charged a purchase commission when you buy the mutual fund. A fund with a back-end load means that you are charged what is generally higher management fee or a penalty if you redeem your units prior to the elapse of a penalty period that is usually 5 to 7 years. Most funds also charge monthly management fees. Bear in mind that there is no relationship between fees and performance. However, in selecting funds, one must decide what level of risk is acceptable for your investment.
These decisions are critical, for merely investing in recent high performance funds has been shown in numerous studies to be nothing but a way to lose money. Mutual funds and other investment portfolios from billion dollar pension funds to private investors' accounts lack persistence of performance. In other words, the stocks or bonds that did well or outperformed the marker in a previous period are unlikely to do so in the next period. Investors therefore need careful, professional work in constructing a durable portfolio, just as much as they would need careful and professional trades in building a house.