How to Research Mutual Funds, Which Mutual Fund Should I Buy?

Investment objective (or category)

The type of fund, such as U.S. mid-cap stock, international, or emerging-market bond.

Fund family

The fund company that offers the fund. You can narrow your choices to fund families you prefer, or to those offered by your company’s 401(k) plan.

Management style

Active or passive. Here’s a hint: read How A Second Grader Beats Wall Street and you’ll know (and understand) why passive is better. Not ready to buy the book? Then read my review!

Management experience

Screen for funds with managers at the helm for at least five years. Ten or more is better.

Total return

Look for returns over the past five to ten years that exceed the return of the most relevant index. For example, if you’re screening stock funds, look for funds with an average annual total return that exceeds that of the S&P 500 index for the previous five to ten years (admittedly, finding these is becoming increasingly difficult considering the economy and inflation). If you can find an after tax or an after tax and expenses return screen, use those numbers rather than the total return.

Turnover rate

Turnover is how often the underlying investments in the mutual fund are bought and sold. These range from the single digits all the way up to 100% and beyond. For taxable accounts, the lower the turnover, the better.

Expenses

Look for no-load funds with expense ratios below 1.00% for domestic and 1.50% for international. The lower the expense ratio, the better. It just means more money in your pocket.

Minimum initial investment

Most funds require you to buy at least $250 or so worth of shares at the outset; others have minimums of up to $100,000 or more. Adjust your initial investment requirements according to the amount you plan to invest in each fund.

Redemption fees

Some funds charge investors a fee (usually 1–2%) for selling shares before a specific time period elapses. If there’s any chance that you’ll need the money you invest within one or two years, screen for funds with no redemption fees. If you’re sure you’re be holding your funds for longer than two years, don’t screen out funds with redemption feeds. .

Found a mutual fund you like?

Once you’ve used a fund screener to identify a few promising funds, it’s a good idea to research those specific funds in more detail at your online broker’s website. Sites like Scottrade and Etrade both offer profiles of funds and fund families, plus added insight into fund performance, fees, and much more.

Mutual funds have taken it on the chin in recent years, and many people are claiming that they’re dead. Those people tend to ignore the fact that upwards of $23 TRILLION dollars are invested in mutual funds around the world. They aren’t going away anytime soon.