10 Tips to Succeed With Mutual Funds


Mutual funds are great long-term investments, but if you blindly pick one without researching what’s out there and carefully weighing your options, then you are setting yourself up for disappointment – and massive losses – down the road. You should keep a few things in mind to succeed with mutual funds, and following these 10 simple tips can help you pick a winner.

1.       Stick with no-load funds.

Many mutual funds come with fees that are levied any time a fund manager buys or sells a stock. If you opt for a no-load fund, you can sidestep these fees and put more money back in your pocket in the form of returns.

2.       Make sure there’s a low turnover rate.

Mutual funds incur fees whenever stocks are bought and sold. Lower turnover equals lower fees and lower capital gains taxes, too.

3.       Look for consistent returns.

You need to make sure the returns investments in the fund are receiving are consistent. We’re not talking sky-high returns – the key here is stability for the long haul.

4.       Keep cash reserves low.

If a mutual fund has a high cash reserve, then this means that your investment will suffer as a result. Cash is generally held back to pay for new investments and to pay off any investors that decide to jump ship and cash out their funds, which cuts into you profit potential. Opt instead for a mutual fund with a low cash reserve.

5.       Be aware of your tax burden.

According to the SEC, you are liable for paying capital gains taxes on a mutual fund. Funds are required to pay investors any stocks they sell for a profit as long as those stocks can’t be offset by a loss. You will be responsible for paying taxes on any distributions you receive from the fund – even if the fund itself is operating in the red.

6.       Don’t buy a new fund.

It’s important to purchase a mutual fund that had been around for a while. The long-term performance of brand new funds has not yet been established, so they’re more vulnerable to negative earnings.

7.       Buy a fund with lots of assets.

More assets equals greater security, plain and simple. The key to stability is diversification.

8.       Keep the turnover rate in mind.

A higher turnover of securities in a mutual fund will incur higher fees and taxes.

9.       See what services are available to you.

Many funds offer services to their investors, such as help lines, live chat, check-writing privileges, and other perks. Find out what’s available to you that can help you easily manage your account before you buy.

10.   Keep your overall portfolio in mind.

Before you invest in mutual funds, you should make sure they fit in with your overall investment strategy. If it doesn’t make financial sense to invest in a fund instead of another financial instrument, don’t do it. Talk to someone who specializes in security analysis and portfolio management.