In one of my previous posts, I mentioned about what to look for when buying mutual funds. Once you bought and invested your hard-earned money into mutual funds, then what’s the next step?
In my pursuit for further financial education, here are the do’s and don’ts of mutual fund investing:
WHAT TO DO WHEN INVESTING IN MUTUAL FUNDS:
– Pick funds that have a proven track record and a manager who has been around for more than five years.
– Pick funds that meet your investment objectives and risk tolerance.
– Select no-load funds, all other things being equal. If you’re interested in a load fund, make sure its performance is worth the fee. Here in the Philippines, UITFs are considered as no-load funds.
– Invest primarily in equity (stock) funds if you want growth. Although risky, equity funds provide the best returns as long as the stock market is performing well.
– If you’re comfortable bypassing a securities dealer, buy shares directly from the fund or bank to avoid paying sales charges. Discount brokers offer reduced sales charges. Mutual fund agents usually get the sales loads deducted as their commissions.
– Invest in four or five funds for diversification. As they say, don’t put all your eggs in one beasket.
– Unless you need the income, reinvest dividends.
– Keep all of your fund statements for your tax records.
WHAT NO TO DO WHEN INVESTING IN MUTUAL FUNDS:
– Don’t invest in a fund if you haven’t reviewed its prospectus and performance history.
– Don’t panic. The worst thing you can do is sell when the market’s dipping, and buy when it’s high.
– Don’t buy aggressive-growth funds if you’re averse to risk.
– Don’t switch back and forth between funds, trying to catch the next wave. By the same token, don’t rest on your oars and stick with a fund that isn’t performing or that changes its objectives. Seek the advice of a financial planner.