BOSTON (CBS) – There are over 9,000 mutual funds & ETFs in the U.S. to choose from and you will need a disciplined process to whittle down the number to something that is manageable. This process will work even if you are just choosing among the funds in your retirement plan.
To begin your research start with Morningstar, an investment research firm that uses stars to rate a mutual fund. Look for:
- A mutual fund that receives a 4 or 5 star rating from Morningstar, 5 stars being the highest.
- A fund manager with a good 5 and 10 year performance record; you may need to settle for a 3 and 5 year record. You are looking for a fund manager that beats their index.
- Check out the expense ratio, this is the cost of running the fund. You want an average or lower than the average expense ratio. These dollars are taken out of the mutual fund whether the fund makes money or loses money.
- Next, check the turnover ratio. Turnover increases expenses as the manager buys and sells securities. The idea is that the manager sells something at a high price and buys something else at a better value. As long as this works you come out ahead.
- Volatility is measured by a statistical tool called Beta that represents how much a fund or a stock moved up and down compared to the stock market. A Beta of 1 represents the market. Look for a low Beta, 1 or below.
- Can you afford the minimum investment required? The minimums are often waived for retirement plans.
Once you have the universe of funds narrowed down using the guidelines above, you probably still have more funds than you need. Take your search one step further and look at the ease of purchasing the funds.
You want to be sure whatever you set up that there is a money market fund available. Selling your fund or transferring the fund will be so much easier if you have a money market fund to use as a holding place.
One more thing: Newsletters are good resources; newsletters I like: Jim Lowell’s Fidelity Investor. Another good newsletter for Fidelity funds is the Fidelity Monitor and Insight. The Money Letter also sits on my desk.
Check out the Mutual Fund Observer newsletter for research on your funds as well.
The library may also have some other tools you can use in your research; newspapers such as the Wall Street Journal, Morningstar, Value Line and Barrons.
You can hear Dee Lee’s expert financial advice on WBZ NewsRadio 1030 each weekday at 1:55 p.m., 3:55 p.m., and 7:55 p.m.
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