This week I decided to continue with the mutual fund theme. No I’m not living under a rock. Yes, I am aware there are a lot of people whose finances have been hurt by the pandemic. However, hopefully the situation isn’t permanent and eventually this info could come in handy. Not to mention, the info is free which is a “deal of a steal”.

Anyway…so you’re ready to put your money into a mutual fund but not sure which one to choose. I hear you with that. There are a bazillion mutual funds out there and it’s hard to tell which is a good one to put your hard earned coin in. Well, have no fear, I got you homie! In this post I’ll outline some things you should consider when choosing a mutual fund and also some questions you could ask your mutual fund provider to watch them sweat like they on the toilet the morning after they eat a KFC.

Ok, let’s do this!

What are your goals?

Are you focused on getting periodic earnings in the short-term (current income), are you focused on growing your funds long term (capital gains) or a mixture of both? For current income you probably should be looking at income funds which are typically bond funds and money market funds. For capital gains your choices are mainly stock or equity funds. For a mixture of the two you’re looking at an “income and growth” fund or “growth and income” fund depending on who’s selling it.

How much risk are you willing to take?

How much risk or fluctuation can you handle before you put on your nightie and your “outside curlers” and go down to independence square to take out your money? If you’re a low risk investor then you probably should be looking at income funds. If you consider yourself a medium risk person you probably should be looking at “Balanced Funds” which have a mixture of stocks and bonds. For the real risk takers, money makers, and heartbreakers out there you would be gravitating toward stock or equity funds and maybe some high interest yielding bond funds.

Understand the fees

Fees vary depending on the fund. Some funds have upfront fees you pay when you buy-in or back-end fees when you sell or both. Some don’t charge upfront or back-end fees but they have what’s called a “Management Charge” where they charge you a fee for managing your money. The key here is to understand how the fees are charged and look at the fee in relation to your return. If you’re paying out more than you’re earning (including inflation) then…I ain’t know how to tell yuh this padna, but yuh wasting time with that fund.

Historical Return

When you’re evaluating different funds you need to look at their track record. Yeah yeah, we all know the warning “Don’t be fooled, all mutual funds are not the same. Past performance is not an indicator of future return yada yada” but it’s a decent gauge. The key thing to look at is the fund’s record over time. Not just the last 6 months or the year to date return. No, you need to look at the 1 year, 3 year, 5 year, since inception return, down to the return since Adam was a boy looking for Eve in the apple patch with she greedy self.

Fund Holdings

If you’re feeling really inspired you can take a look at the assets in the fund? A lot of funds publish their top 10 assets on a quarterly basis. Look at the fund to see the kind of asset classes (stocks, bonds, real estate, crypto etc), industries, individual companies, etc. Make sure they’re not investing in companies making VHS tapes or rotary dial phones.

Questions for your fund manager or investment advisor

A good way to kick off the interrogation is by asking “what is the benchmark for the fund?” A benchmark is a metric used to compare the mutual fund’s return against some index or the market. Once the advisor has recovered, you can hit them with “how do my fund’s returns compare to the benchmark return?” If the fund is earning less than the benchmark then your advisor has some ‘splaining to do. Another good question is “how volatile is my fund compared to rest of the market?” If the fund is more volatile than the market it means it is more risky. Therefore, if it is taking more risk and earning less than the market then ask the advisor what kind of jokey fund is that? Let me know how this interaction goes, tape it if you could.

Finally, remember, deposit insurance does not cover mutual funds. Mutual funds are investments and deposit insurance covers…drum roll…deposits not investments. Therefore, always remember you’re taking a risk when you invest in a mutual fund, unless you invest in a fixed NAV fund instead of a floating NAV fund but that’s a topic for another day.


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