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In the rush to be a part of the exciting and profitable world of mutual fund investing, many investors make mistakes. It’s human nature and nothing to be ashamed of, but they can and should be avoided. Here are a few helpful tips in avoiding the common mistakes that many other new investors make.
First off, a cardinal sin that many new investors make is that they only look at a mutual funds previous performance and not at the possible future. Sure, a stock or mutual funds performance in the past is a good sign of how its been managed and it always is a good sign to surround yourself with people who know what their doing, but you have to take the current state of the market into account. For example, funds that may have been heavy on dot.com’s did great in 1998 and 1999, but if you had a fund that was heavy in tech stocks in 2000, you probably lost your shirt. Past performance doesn’t mean as much as people think it does, and you would be wise to not put as much emphasis on it when you go to invest.
While the percentages listed in the prospectus might seem low, operating expenses for mutual funds really do matter. If you’re looking at a fund that might have a higher than average percent fee for running the fund, you might want to look at other funds, instead. Most market experts think that the percentage of returns over the next few years will be down, and so that fee for running the fund takes a bigger and bigger bite out of your profit. It may not seem like much, but it can really add up over time, especially if profits are down.
A small but important part of investing is checking out what your fund manager has on his financial offerings. This can be done by checking the prospectus the fund company sent you. Remember, if your fund is doing good business, it’s likely that the fund manager who is overseeing it is going to get more funds to manage or a promotion to look over an entire group of funds. This could likely take away from the time he has to look over YOUR fund, and while we wish fund managers all the luck in the world in their career, you want someone who is going to be focused on making money for you.
As long as there are people investing in mutual funds, there will likely be occasional errors, While mistakes can’t be avoided completely, a few common sense tips can help you avoid the big ones and keep your money hard at work for you.