Locating a Mutual Fund can be overwhelming if you don’t know where to look. In this post, I’m showing you the three-part approach I use.
Once I have determined the category of mutual funds that meets my criteria, it is time for me to review actual mutual funds. Here’s the three-part approach:
- 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!
- 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!
- 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 use the CNN Money Snapshot feature to analyze funds. I also like to compare mutual funds to each other using the “Advanced Charts” feature on CNN money.
So that’s just a glimpse into how I choose mutual funds. Many times I end up with a dead end, and I go back to the starting point again to get more mutual funds to compare!
There are literally THOUSANDS of mutual funds available in the marketplace today. Each mutual fund is usually assigned to a particular family of mutual funds.
Here are some common categories of mutual funds…
- International Stock Fund
- Aggressive Growth Stock Fund
- Growth Stock Fund
- Growth & Income Stock Fund
- Equity-Income Fund
- Balanced Fund
- Bond Fund
- Value Fund
- Industry-Specific Funds (like Healthcare Fund or Pharmaceutical Fund)
- Index Funds (S&P 500, Russell 2000, etc.)
If you purchase ownership in an International Stock Mutual Fund, you can bet that it is primarily investing in international companies. If it is an Aggressive Growth Stock Mutual Fund, you would expect to see the mutual fund purchasing shares of companies that are growing like crazy.
Each family of funds has a general “feel” to it. The International and Aggressive Growth Stock Mutual Funds tend to have wild swings in performance. One year it could grow 40% and the next it could lose 25%. It feels like you are on a great roller coaster ride at Six Flags!
Growth & Income, Equity-Income, and Balanced Funds are more stable and predictable.
Index Funds track specific market indexes like the S&P 500 and the Russell 2000.
Interested in learning more about investing? Check out my book on investing: “Oxen: The Key to An Abundant Harvest” HERE.
Goals! I love GOALS!! My goals spur me to save and invest. Today, I’m sharing about how my personal investment goals guide my mutual fund choices. First you should know a couple of things about me.
- I view my investments as money that I will not touch for at least five years.
- I prefer mutual funds over individual company stocks. I do own several individual company stocks, but I will not allow an individual company stock to exceed 10% of my overall portfolio. (See my current investment portfolio HERE)
My investment goals are GROWTH, GROWTH, and more GROWTH. I do not need my investments to produce income for me as I am in my early 40s. I want my money to GROW. This means that I invest in mutual funds that are purchasing stock of companies that are experiencing major growth (like Google).
Now, if I were retired, I would want my investments to produce income so I would be searching for mutual funds that invest in companies that are paying dividends to its shareholders (like Wal-Mart, Microsoft).
If I were approaching retirement, I would be moving the money that I would need in the next five years to much more stable and secure investments.
What are your investment goals?
One of the questions that I get asked the most at an event is: “What is a Mutual Fund?” Mutual funds can certainly sound confusing – especially when there are so many options available. So for those who do not know what a mutual fund is, let me explain it the best I know how.
If something has been FUNDED, it means that money has been given to it.
If you and I come to a MUTUAL agreement, it means that we both were involved in making the agreement.
So if you and I have MUTUALLY FUNDED a project, then it means that we both provided money for the project.
A MUTUAL FUND means that you and I have both put our money in the same place. It is not unusual for a mutual fund to have over 5,000,000 people MUTUALLY FUNDING the same investment.
So we have mutually funded an investment along with three or four million of our closest friends. The amount you have invested is different from how much I have invested, but it is all in the same place.
So, we now all understand that we have mutually funded this investment and that it is called a mutual fund. The next question to answer is: “Where does the money go once it is in the mutual fund?”
Well, each mutual fund has a specific objective. Some mutual funds have an objective to produce income. Others have an objective to maximize the long-term growth of the invested money. Still others may have an objective to invest only in international companies. The bottom line is that each mutual fund has a specific objective or charter.
Based upon a mutual fund’s charter, the mutual fund managers will purchase part-ownership in a lot of companies.
The Mutual Fund managers use the money provided by you, me, and three million of our closest friends to purchase ownership in anywhere from 50 to over 1,000 companies. As these companies earn profits and grow, the value of the investment grows. This means that each individual who owns a portion of the mutual fund can enjoy that growth as well.
I hope this post has helped understand exactly what a mutual fund is. Let me know below if you have any additional questions about mutual funds.
Proverbs 14:4 – Where there are no oxen, the manger is empty, but from the strength of an ox comes an abundant harvest.
PART FOUR – Put your oxen to work!
This is the fun part! As you put your oxen to work and provide adequate nourishment and attention, they will begin to work for you in ways you never thought possible. Your 401(k) will grow without the need for any energy expenditure from you. The rental house will produce income and increase in value even when you are on vacation. The book that you’ve been wanting to write will be purchased by people from across the globe – even while you sleep. The website will sell products without your direct involvement. The team of people at your business will work to serve customers whether you are there or not.
Don’t make the mistake of thinking your oxen will work perfectly with zero involvement from you. The last I checked, oxen will still wander off if you don’t provide them some direction and leadership. Be sure to establish a system that allows you to always know the numbers and enables you to measure the health of your herd.
As your oxen work for you, they will truly provide an abundant harvest which will allow you to bless your family and those in need in ways you never thought possible.
TRUTH: Oxen acquisition can allow you to enjoy an abundant harvest.
ACTION: Will you share with me one way you’re putting your oxen to work?