What to Look For in a Mutual Fund

For many investors, Mutual Funds are a simple and effective investment type to meet their financial goals.

You may want to consider investing in a mutual fund when:

You have a shorter time horizon
You want a professionally managed investment
A smoother investment experience
You want access to a variety of businesses
You need tax efficiency

Historically, some mutual funds have outperformed their respective indexes while offering less risk. These are the mutual funds that you should be using.
Before purchasing any investment, you will need to determine which asset class (equity, bond, alternative, balanced or managed) will be the best to meet your goals.

WHAT TO LOOK FOR

So you have decided that mutual fund is the right choice to meet your goals, and narrowed down which asset class is best – here are the key metrics to look for when choosing which mutual fund to buy:

RISK OF THE FUND

For investors with shorter time periods or low risk tolerance, choose a low to medium risk investment.

HISTORICAL PERFORMANCE

Take a look at how the fund has performed over a longer time period. We like to look at ten-year performance and greater when available. This allows us to see how the fund performed in good markets and in bad markets. Calendar year performance is also an effective way to track how an investment performs in different market environments.

MANAGEMENT TEAM

Read about how the fund chooses which businesses it invests in. We like funds that select businesses with strong management teams that plan for the long term. Also, a disciplined investment process is critical. Knowing the strategy of the fund will give you greater confidence in your decision.

COST

Select a fund that delivers strong net performance – returns after fees. Also, take advantage of mutual funds that offer lower pricing at larger investment amounts. Stick to Series F and D mutual funds.

INVESTMENT STYLE

We tend to favor funds that offer growth at a reasonable price along with dividend focused managers. They tend to invest in businesses that have more consistent performance.

An easy and smart place to start when choosing a mutual fund is by looking at funds that have won awards for their performance from the main rating services, like Morningstar or Lipper.

If you’re still unsure of which fund to go with, you can get a second opinion from your advisor or another industry expert before making the investment.

For McVean Wealth, I’m Alex McVean.