Things You'll Need:
- A little time to go over your portfolio
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Step 1
Decide your risk tolerance. Know what your threshold for risk is. Some good basic rules for this are the more discretionary income you have, and the younger you are, the higher your risk should be. Base your risk assessment off of how easy it would be to replace any lost money, and how badly you'd miss it if it were gone forever.
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Step 2
Mutual funds are great for diversification, but you have to look at the underlying investments. Some folks I've seen thought they were well diversified, but ended up having mutual funds that held the same stocks. If you have five funds and they all invest in the same companies, you've now increased your exposure to risk. Many of the fund managers out there talk to one another and invest in similar companies.
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Step 3
Look at the prospectus. If you have a high risk tolerance and you decide, "Hey, I'll invest in this aggressive fund." that's fine. Just make sure you look at the fees. They are called 12b-1 fees and they are how the mutual fund company keeps the lights on, so to speak. Compare two similar types of funds and choose one that has a low 12b-1 fee, so that you keep more of the money you make.
Comments
southerngirl09 said
on 9/2/2009 Good information on how to allocate your assets. I am sure a lot of people wish they had read this before they invested. 5*