Investing by nature is a risky business. These days it can be dangerous. Mutual funds are coming under greater scrutiny since it is so easy to give an investor a raw deal. Individual stocks used to be the hardest thing to figure out but now you have to be doubly cautious when choosing mutual funds.

It doesn’t help that they are growing like weeds in today’s market. The thousands of funds can give you sleepless nights as you agonize over which ones to pick. There are five rules that can help you get to sleep at night. They are very basic and will serve you well if you adhere to them.

Rule #1
Diversify – Sinking all of your investment capital into one mutual fund is asking for trouble. The more diversified your portfolio is the greater chance you have of coming away from the table without loosing your shirt. Having at least 3-4 different mutual funds would give you the edge, which means if one is not doing well the others could possibly pick up the slack.

Rule #2
Analyzing – Evaluate the mutual funds past performance with a fine toothed comb. You will want to have a clear picture of the mutual fund performance while under varying market conditions. It is easy to do well if there is a bull market it is when things bear down that the real truth wins out.

Rule #3
Look for the continuity of style within the mutual fund performance. Keep up with how the mutual fund is performing by reading the annual reports and proxy statements. It will let you see if the mutual fund is constantly shifting investment style. Why? So glad you asked. This could mean that what they had been doing wasn’t working out and if this is the case how many things have they tried that did not pan out. You want a mutual fund that has been doing its thing the same way for quite a few years.

Rule #4

It’s your money make sure they use it wisely. Look for mutual funds that do not take a lot of high risks. Money managers will take liberties with the fund if you are not careful. You want a fund manager who is conservative but not stodgy. This way you can be assured that the investments will be in the most secure things they can find. This is especially important in these economic times.

Rule #5
Know when to cut and run. A lot of people make the mistake of staying with a mutual fund that is performing poorly thinking, hoping and praying it will turn around. Learn to recognize that mistakes happen, so you chose a bad mutual fund. There is no need to compound this mistake, just cut your losses and find another.

If you use these rules as guideposts when navigating the torrid waters of mutual fund investing you will be able to get in and out with at least part of what you put in. If things go according to plan you will come out ahead.

Author Bio: Next, find out more about how to pick mutual funds in the best specialized website available on such delicate topic.

Category: Finances
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