How to Choose a Growth Stock Mutual Fund

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Investing in a good-quality mutual fund is an effective way to add diversity and professional management to your investment portfolio. The challenge is trying to figure out which growth stock mutual fund to invest in from among the plethora of available options. Choosing a good mutual fund is not much different from choosing an individual stock, and taking the time to do your research can help you avoid paying too much.

Investment Temperament

  • Determine your investment temperament. Whether you're a roll-the-dice kind of risk-taker, or break out in a cold sweat at a slight swing in the stock market, there's a growth stock mutual fund to suit you. Know your temperament before you invest your money in a mutual fund. If you have a high tolerance for risk, you might want to invest in an aggressive growth fund. If you have a low tolerance, you'll probably feel more comfortable with a more conservative large-cap growth mutual fund.

Load vs. No-Load

  • Compare the cost of purchasing shares of the fund. Mutual funds do not trade in the open market the same way stocks do. They are bought and sold directly from the mutual fund company, typically through a broker or sales agent. The mutual fund might pay the sales agent a commission for making the sale, and it might charge you a fee, referred to as a load, to buy your shares. Some funds don't charge an up-front load, but charge a fee, referred to a back-end load, when you sell your shares. Some growth stock mutual funds, referred to as no-load funds, don't have a sales charge at all, so all of your investment goes to buying shares of the fund.

Fees

  • Compare the fund's fee structure. Whether or not a growth stock mutual fund charges a load, it comes with a cost for operation and maintenance that is borne by the fund's shareholders. Fees typically include a management fee, paid by the fund to the fund's managers and advisers for managing the fund's portfolio. Any time securities are bought or sold in the fund, transaction fees and commissions will be charged. The fund might impose maintenance fees, distribution fees and other fees to cover the cost of producing and printing annual reports, prospectuses and marketing materials.

Return on Investment

  • Investigate the growth stock mutual fund's track record. Unless you have a high tolerance for risk, you're probably better off going with a fund that has been around for at least 10 years rather than investing with a start-up fund that has no track record. Look at the fund's total return after fees, expenses and taxes. Even though past performance is never a guarantee of future results, a fund that has a long history of producing consistently good returns is more likely to continue in that vein.

References

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