The Best Way to Compare Mutual Funds
Because a small investor doesn't have the financial power to purchase large numbers of investments, mutual funds allow people to pool dollars together to buy shares in many stocks or bonds. Reviewing which mutual funds are worthwhile can be problematic. Funds have managers, track records, investments, fee structures and stated goals that all need to be compared. Rather than requesting information individually from every fund, there are now tools available that make finding and comparing mutual funds easier.
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Instructions
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Write down your goals. Rather than trying to tackle the entire field of thousands of mutual funds, the best way to compare funds is to focus on those that meet your goals. Write down specific, concrete goals with the amount of money you'll need and time frame to reach the goal. Focus on more aggressive mutual funds such as small company and international investments for long term goals and more stable funds, such as government and short-duration corporate bonds for short term goals.
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Explore online screening tools that will help you compare funds. Sites such as Morningstar and Wall Street Journal Online have mutual fund screening tools to allow you to compare only those funds which are relevant to your goals. Play with the screening tools to decide which interface you prefer to use when comparing funds.
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Compare management. When you purchase a mutual fund, you're purchasing the management team that makes buy and sell decisions for the account. A long term track record is irrelevant for a management team that's recently changed. Search for managers who have been with a fund for at least five years to ensure that the other search results you'll find reflect the current management group.
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Compare fees. Funds may charge up-front fees, management fees, 12b1 advertising fees and back-end fees. If you're picking funds on your own there is no need to pay an up-front or back-end fee. Funds without these fees are called "no-load," and searching no-load funds with similar internal investments to compare fees will help you find low-cost providers.
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Compare the track records. When comparing funds, it's important to make sure the funds have similar goals. Because different types of funds prosper under different economic conditions, comparing two funds with different goals may point you toward funds which performed well under past market conditions rather than a fund that may be poised for growth. Request literature from the fund company and find what benchmark the fund compares itself against. See how the fund stacks up against this benchmark over the manager's tenure to determine if this fund does a good job of holding onto your money.
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