MUTUAL FUNDS 101
This week on THAT MONEY SHOW, Betsey Karetnick spoke with Jason Zweig, a columnist for MONEY MAGAZINE, about mutual funds. Zweig's advice was very straightforward and good for anyone new to investing or looking for extra tips.
Q: How do I know which mutual fund to invest in?
A: Well, with over 12,000 mutual funds available, choosing can be difficult. Looking at a fund's annual fees could help you make your choice. Never pay more than 1 percent in charges or fees. Even the funds that claim to have no load (annual fee) have a charge. Also, many investors think index funds are a cheaper option, but some can be overpriced. Do not pay more than 1/2 percent annually for an index fund.
Q: How long should I expect to keep my money in a mutual fund?
A: Don't buy a mutual fund if you plan to gamble with it. Hold on to it for a long time. If you have a good mutual fund with a low annual fee, and the returns are good overall, keep it for as long as you can. If you wait until retirement age to cash in that fund, you will also pay lower tax penalties, and you'll have given your money more time to mature and gain in value.
Q: How should I structure my portfolio?
A: Diversity is the key. Do not buy only stocks, or only bonds. Also, think internationally. Your mutual funds should include funds that focus on U.S. companies, funds that focus on foreign companies, and funds that hold bonds. What proportions of these you buy, however, will depend very much on your personal priorities. If you're close to retirement age, you may want to take fewer risks with your money and focus on very safe funds. A recent college graduate, however, may be more willing to invest in aggressive and potentially risky funds for a few years. To find out what strategy may be best for you, consult a qualified financial planner.
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