Though we actively research the entire mutual fund universe to come up with a selection that is quite optimal in terms of performance, fees, policies, and discipline, these same factors plus a few others should be considered by you before you invest. In the case of funds not screened by us, your diligence is doubly important.

Investment Objective

The most important characteristic of any mutual fund is its objective both in terms of the type of return sought and the constituent securities utilized to obtain that return. One can garner income from bonds, money markets, dividends from stocks, etc. One can experience growth through stocks, commodities, and any asset thought to be undervalued. One can reduce overall volatility by participating in alternate markets such as real estate, foreign securities, and derivatives. Consistent with one's tolerance for risk, objectives should be determined and only funds that strive for those objectives should be considered.

Management Fees

Plain and simple, fees should be minimized for any given level of service. In terms of money that must be spent to do appropriate research, stocks are more costly to manage than bonds, and international securities are more costly than domestic issues. Thus it is normal to see bond fund fees from .25% to 1%, equity fees from .5% to 1.5%, and international stock fees from 1% to 2%. Given recent single-digit and even negative returns, if all other factors leave one neutral, the expense ratio is not a bad factor to weight heavily.

Sales Fees

Pay none. Ever.

Do not buy 'B' shares, which add sales charges to the management fee, spreading commissions over 5 or more years, reducing returns the whole time. 'B' shares also commonly penalize early share redemption, possibly causing imprudent investment decisions and certainly reducing funds retrieved when so needed.

Do not buy 'C' shares, which add even more costs than 'B' ostensibly to provide flexibility. In effect, there are lower, perhaps no, early redemption penalties, but one pays even higher continuous sales charges than with 'B' shares. There are plenty of no-loads - funds without sales commissions - that offer better flexibility at no charge.

Do not buy 'A' shares with a front end load. When you fill your car's gas tank, do you ask the attendant to pour a gallon onto the pavement and then put the rest into your tank? If you pay a sales charge on an investment, you have done just that. You earned and saved your money. You should be able to invest all of it.

Performance

While not an indicator of future results, long-term past performance can provide valuable insights. Consistently poor returns might indicate an operation with poor research acumen or resources. Results inconsistent with a fund's target market might be a sign of imprudence. Fine average long-term performance derived from extremely good years coupled with overly bad years might indicate disproportionate risk. In all circumstances, results of funds should only be compared to like funds and the underlying investments.

Discipline

A large cap growth fund should not own shares of a small bank. A bond fund should not hold gold. Check filings and/or reports to be sure funds you are considering have constituent securities consistent with their objectives and descriptions.

Diversification

One of the reasons one buys a fund instead of individual securities is for instant diversification. If a fund has more than 5% of assets in any one security, or industry weightings far out of line vis-à-vis the market without due cause, it may be wise to pass and look for other vehicles more prudently positioned.

Management

It is usually a good sign when a well-performing fund has management with long tenure. Whenever there are management changes in a fund already held, it is wise to review the fund and the history of the new manager, if available.