MUTUAL FUNDS IN 2001

Last year, when the tech sector of the stock market collapsed, a lot of investors lost their shirts. To help get our viewers off to a safe start in 2001, THAT MONEY SHOW invited columnist Jason Zweig of MONEY MAGAZINE to give us some suggestions on how to safely evaluate and select mutual funds that will meet our financial goals without undue risk.

To hear Jason Zweig's exact words, watch the RealPlayer video clip, at right. You can choose the Otherwise, keep reading. Below is a summary of Jason's tips.

1. Don't make the mistake of putting all your eggs in one basket. Last year, many investors lost money because they put all their investment dollars into the stock of technology companies, or they invested in aggressive-growth mutual funds with a high percentage of technology stocks. When the prices of many technology stocks dropped, so did the market value of those investments.

2. To avoid this danger, investors should instead choose mutual funds that hold stocks from a wide range of market sectors, including utility, health care, and pharmaceutical companies. Even if one sector performs poorly for a year, growth in the others will keep the value of your investment on the rise. For the safest investors, divide your investment money between U.S. stocks, foreign stocks, and U.S. bonds.

3. When the markets declined in 2000, many investors sold their shares at a loss. What sense does this make? The motto for investors is "Buy low -- Sell high." When things aren't going your way, consider waiting a bit before selling. Many strong investments may experience brief periods of weakness, but they usually overcome temporary difficulties and rise to meet your long-term expectations.

4. If you do suffer a loss in any given financial year, and you must sell the stocks, talk to your accountant about deducting your investment losses from your taxes. In most cases, this is possible, and can help to ease the pain of losing money. Another tip is that 31 days after selling those stocks, you can buy them again at the low price, and continue to hold them until you make a profit.

5. When determining the performance of a mutual fund you have chosen, make sure to look at the performance of other funds in the same category. For instance, if your mutual fund rose by forty percent in a single year, you would be very pleased, initially. But if, after comparison, you found that other similar funds rose by as much as one hundred percent, you might consider making a change. As with everyday shopping, comparison shopping is essential to your long-term financial growth.

6. Before buying a fund, find out if you will be charged a sales fee. This is often called a "load" or a "loaded fund," which means that the broker will be taking some of your money as a commission. Now, everyone deserves to be paid, but remember, this is your financial future we're talking about. To keep your money growing strongly, find out about many of the new "no load" funds. These are mutual funds with no sales commission. Additionally, all funds charge an annual management fee. Try to choose a fund with an annual fee of one percent or less.

7. So. You've found a diversified mutual fund, and discovered that it has no load and a low annual fee. It's been performing very well for the last twenty years, and you're ready to buy. STOP! There's one more critical question you must ask before putting your money into an investment.
   

8. Remember that funds are managed by people, and it is often the skills of these managers that determine the growth of a fund. Before buying into the skills of a manager, find out how long she's been managing the fund, and how long she's planning to stay. If a manager has been with the fund for ten years and has always managed excellent growth, that's a great sign. However, if that manager is leaving next year, and you don't know who's going to replace her, consider putting your money somewhere a bit more safe.

9. Additionally, a change in management can mean that the new manager has very different ideas about which stocks a fund should invest in. So, a new manager will likely sell much of the fund's holdings. The profits from these sales can generate an additional tax burden on the fund's investors.

All the research and preparation in the world can't eliminate risk -- financial and otherwise. But following these tips can help you make wiser choices about how you're going to meet the finanical goals you've set for yourself and for your future. Remember, it's your money and your life.

For more information on how you can achieve your financial goals, visit our archive, and read:

• Saving Money
• Mutual Funds
• Retirement Planning