Choosing Mutual Funds – Part 4

Welcome to the latest series on – "Choosing Mutual Funds"

In this series, I will be sharing how I choose mutual funds.  It should be noted that I do not sell investment products nor am I professional in the mutual fund industry.  This is my own personal philosophy for choosing mutual funds.

Part One  What is a mutual fund?

Part Two  Establish investment goals

Part Three  Types of mutual funds

Part Four  Locate mutual funds that meet individual criteria

Once I have determined the category of mutual funds that meet my criteria, it is time for me to review actual mutual funds.  To find the mutual funds, I use a three-part approach.

  1. Mutual Fund Screens – I really like CNN's Mutual Fund Screener and Morningstar's Mutual Fund Screener.  For example, I used the CNN screener to select Small Growth Diversified Funds that have delivered an average of 10% annual return OR LARGER for the past 10 years.  It delivered 36 mutual funds that met that criteria!  This really helps me narrow down the search!
  2. Review Retirement Plan Mutual Funds – If your employer has a retirement plan such as a 401(k), 403(b), Simple IRA, or TSP then be sure to review the options available.  My employer has a Simple IRA with American Fund investment options.  Usually an employer helps absorb some of the fees or the fees are reduced by the plan administrator.  This can really help preserve financial gains!
  3. Seek Professional Guidance – I meet with a financial advisor about once a year.  This professional advice helps me look at my investments with more clarity.

Once I have found funds to look at, I look at the following characteristics of each fund:

  • Age of the Mutual Fund  I like mutual funds that are older than me!
  • Investment Growth  I look at the 1, 5, 10, and Lifetime track records.
  • $ Needed To Start  This is really important for beginning investors.
  • The Fund's Objective  This helps me understand the direction of the fund.

I used the CNN screener in part one above and found two funds to use as an example – First American Small Growth Opportunities Class Y Mutual Fund (FIMPX) and Baron Small Cap Fund (BSCFX).

I use the CNN Money Snapshot feature to analyze funds.  Click on the "Stock Ticker" symbols next to each mutual fund above to see the Snapshot for each of the two funds above.

I also like to compare mutual funds to each other using the "Advanced Charts" feature on CNN Money.  You can view the actual chart and details on CNN Money by clicking the below chart.

Looking at the two charts over their lifetimes, which would you choose?  🙂  Hmmmmmm. One thing I always remember is that history is just that: history.  But it is all I have to go on, so that is why I really like mutual funds that have proven track records and have been around longer than I have.  These two mutual funds are not even teenagers yet, so the jury is still out for me (Maybe that's why I don't OWN either of these).

So that is a glimpse into how Joe chooses mutual funds.  Many times it ends up with a dead end, and I go back to the starting point again to get more mutual funds to compare. 

Tomorrow, this series includes with the most important part of the entire process! 

Read the entire "Choosing Mutual Funds" series by clicking HERE

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1 Comment

  1. Saving Freak on March 27, 2008 at 4:56 am

    Joe, you’re a nerd.

    When evaluating a mutual fund all I care about is how it has done over the long haul. So if it has been around 50 years and has averaged 11% a year over that time it is probably a safe bet. My personal favorites are vanguard funds because they charge no commission and have the lowest expense ratios in the industry.

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