William Penn Life, 2000 (35. évfolyam, 1-12. szám)
2000-08-01 / 8. szám
Mutual Fund Investing Look at more than a fund’s past performance from the Securities and Exchange Commission You can't open a newspaper or read a magazine without seeing ads promoting the stellar performance of "hot" mutual funds. But past performance is not as important as you may think, especially the short-term performance of relatively new or small funds. As with any investment, a fund's past performance is no guarantee of its future success. Over the long term, the success of your investment in a fund will depend on factors such as: • the fund's sales charges, fees and expenses; • the taxes you may have to pay when you receive a distribution; • the age and size of the fund; • the fund's risks and volatility; • recent changes in the fund's operations. So, look at more than the fund's past performance when making your investment decisions. Read the fund's prospectus and shareholder reports, and consider the following tips. Scrutinize the fund's fees and expenses. A fund with high costs must perform better than a lowcost fund to generate the same returns for you. Even small differences in fees can translate into large differences in returns over time. Know how the fund impacts your tax bill. The law requires a fund to make capital gains distributions to shareholders if it sells a security for a profit that can't be offset by a loss. If you receive a capital gains distribution, you will likely owe taxes on it, even if the fund has had a negative return since you invested in it. Call the fund to find out when it makes distributions so you won't pay more than your fair share of taxes. Consider the age and size of the fund. Before investing, read the prospectus to find out how long the fund has been operating and its size. New or small funds sometimes have excellent short-term performance records because they may own only a few successful stocks. But as these funds grow larger and increase the number of stocks they own, each stock has less impact on performance. Look at how the fund has performed over longer periods and how it has weathered the ups and downs of the market. Think about the volatility of the fund. Past performance can tell you how volatile a fund has been. Generally, the more volatile the fund, the higher the investment risk. If you'll need your money to meet a financial goal in one year, you probably can't afford the risk of investing in a fund with a volatile history because you will not have enough time to ride out any declines in the stock market. Read the fund's prospectus and annual report and compare its year-to-year performance. This will tell you whether the fund earned most of its returns in a few small bursts or in a steadier stream. Factor in the risks the fund takes to achieve its returns. Learn about the fund's investment strategy. Funds with higher rates of return may take risks that are beyond your comfort level and are inconsistent with your goals. But, remember, all funds carry some level of risk. Just because a fund invests in government or corporate bonds does not mean it does not have significant risks, V~7\ Ask about recent changes in U-_l the fund's operations. Has the fund's investment adviser or strategy changed recently? Has the fund merged with another fund? Operational changes such as these can affect future fund performance. Check the types of services offered and fees charged by the fund. Learn what services the fund provides to shareholders. Some funds provide special services, such as tollfree telephone numbers, check-writing privileges and automatic investment programs. You should find out how easily you can buy and sell shares and whether the fund charges a fee for such transactions. Assess how the fund will impact the diversification of your portfolio. Generally, the success of your investments over time will depend largely on how much money you have invested in each of the major asset classes—stocks, bonds and cash-rather than on the particular securities you hold. When choosing a mutual fund, you should consider how your interest in the fund affects the overall diversification of your investment portfolio. Maintaining a diversified and balanced portfolio is key to maintaining an acceptable level of risk, [jrö] Money Links To learn more about mutual funds, call the Securities and Exchanges Commission at 1-800-732-0330 and ask for its publication entitled, “Invest Wisely: An Introduction to Mutual Funds.” You can also learn more by visiting the SEC on the Internetat: Y http://www.sec.gov/consumer 4 William Pena Lite, August 2000
