Investing in Mutual funds: Rules to Live By
Listed are some of the Fundsupermart rules of investing in mutual funds. This is a summary of the key points in the More Money, Less Stress University.
1. Spend more time with yourself
Talk to yourself. Ask yourself how much money you need, by when and for what kinds of goals, and then find the best investments to meet those needs.
2. Always know what you are investing in
Although mutual funds are considered to be less risky than stocks, you can still lose quite a bit if you pick the wrong mutual fund. Do your research diligently in our Fund Info section. If you need more information and it is not provided here at the Fundsupermart.com, tell us about it and we will make it available.
3. Don't switch mutual funds constantly
Always invest for the long term. Every time you decide to sell a mutual fund and replace it with another, you incur additional costs - initial entry load for the new fund and exit loads from the old fund.
4. Funds are not 'Hello Kitty' collectibles
Remember, you're not collecting the latest hot toy from McDonald's. You're investing. The point is not to buy every single type of mutual fund in the market, but the fewest number possible that would give you a diversified portfolio. Check out our Picking the Right Fund section to learn how to buy a mutual fund that suits you.
5. Average out (Systematic Investment Plan (SIP))
Invest regularly with each paycheck. Mutual funds allow you to invest automatically each month through SIPs. You might feel the pinch initially but sooner or later you'll forget about it.
6. Diversify your asset holdings
Do not have all your money in one type of mutual funds. Studies show that asset allocation has as much as 90% impact on a portfolio's returns. Form a portfolio of different assets according to your investment horizon.
7. Watch your time horizon
You may have invested in higher risk mutual funds because you had a longer time horizon. But as your horizon nears, you have to remember to shift to lower risk mutual funds so that you preserve what you have gained.
8. Take on risks according to your investment horizon
If you have a long horizon, you may take on higher risk mutual funds. But if you have a short time frame, you should look at less risky, fixed income mutual funds. You shouldn't 'gamble' on a high risk product.
9. Be a cheapskate
Once you arrive at a selection of mutual funds which seem equally good, go for the one with the lowest loads and annual expenses. Mutual funds that charge less will earn more for you over time. Make your money work for you, not the other way round.
10. Aim low
Be realistic. Do not expect your mutual fund to give 100% returns after one year (or every year!). Set your sights lower, and hang on for the long run. Remember that TIME is your best ally in mutual fund investing.