How to Manage Specialty Funds

Specialty, or specialized, funds are mutual funds that limit investments to a particular industry, sector or region, like technology, health care or Asia. Since they are less diversified than other types of mutual funds, they tend to be very aggressive and fluctuate a lot. To successfully manage specialty funds, you should have a long time-frame within which to work. If you don't know how to manage this type of fund or your fund doesn't have a manager, an investment advisor will be especially helpful.

Instructions

Difficulty: Moderately Challenging

Things You’ll Need:

• Financial advisor or mutual fund manager
• Area in which you wish to specialize
• Long-term investment plan

How to Manage Specialty Funds

1. Decide how much money you want to invest in the fund. Remember not to invest more than you can afford to lose.
2. Research funds and find the specialty that most suits you in terms of risk, payoff and personal mentality.
3. Look into different fund managers and financial advisors to find one who will work well with you.
4. Check out the background of the fund manager or financial advisor you've selected to learn more about her successes and failures.
5. Follow the advice of your financial advisor or fund manager. Remember that specialty funds are long-term investments.
6. Stay on top of your quarterly reports and make any changes necessary to further diversify your investments.

Tips & Warnings

• Know what your mutual funds invest in to make sure you are meeting your diversification goals. Quarterly and annual reports will tell you in what sectors and companies a fund is currently holding stocks.
• Specialty funds are more volatile than balanced or blended funds, so only invest in them if you have a long-term investment strategy. To limit your risk of losses, specialty funds should also be just one part of your overall investment portfolio.
• Read the prospectus. Before investing in any mutual fund, read the prospectus to determine the fund's objectives, performance history and fees.
• Check for minimum investment amounts. Most funds have them.
• Know that fund expenses affect your bottom line. Fund expenses dilute your returns in ways that can add up significantly over time. Calculate the effect of expenses to get a true picture of a mutual fund's performance.
• Heavy investment in just one area can mean disaster if that area should falter. Don't sink all your savings into specialty funds; instead, choose one specialty fund to invest in and diversify the rest of your portfolio.