Analyzing a Mutual Fund

There is more to analyzing a mutual fund than reviewing past performance. In fact, the best predictors of future performance include factors many investors overlook.

Whether you have made a thoughtful decision to invest in mutual funds or you are all but forced to invest in mutual funds (401k, 403b, or other retirement plans), you are bound to read about, hear about, and/or experience the pitfalls of mutual funds. So, let’s take a look at several pitfalls of mutual funds and what we can do to avoid them.

Past performance of a mutual fund may not be a guarantee of future results but if you know how to analyze performance--if you know what to look for and what to avoid--you can make better investment decisions.

Mutual fund research can be made easier with a good online research tool. Whether you are a beginner or a pro and if you are looking to buy the best mutual funds, review an existing fund, compare different funds or just trying to learn something new, these mutual fund research cites are among the best.

Each and every year, generally in the first quarter of the year, top performing funds receive accolades from various media outlets. But should you purchase these top performing funds?

Alpha can be used to measure the value added or subtracted by a portfolio manager. Investors who understand the definition and benefits of alpha can gain an edge in mutual fund selection.

Sharpe Ratio is a useful analytical tool for analyzing mutual funds. Investors who understand the definition and benefits of Sharpe Ratio in their fund research are enabled to build a better portfolio of mutual funds.

Statistical analysis of mutual funds requires a fundamental knowledge of quantitative measures, such as Beta, R-squared, Alpha, Sharpe Ratio, Expense Ratio, and Tax Cost Ratio. Learn more about statistical analysis and you can choose the best mutual funds.

Whether you use an advisor or you do it yourself, you might enjoy a few sites to help you research mutual funds. The first place to research mutual funds is the sites of the broker and/or mutual fund companies. If you feel compelled to research your mutual funds further, you might want to try one of the sites below.

If you are counting on target-date funds as the simple solution for your retirement investments, be careful. Just as with any investment, you will need to do some homework. All target-date funds are not all created equally

What are mutual fund holdings? Do holdings matter with mutual funds? How many holdings is ideal? The total number of holdings can give an investor a clue to future performance.

What is Return on Investment (ROI)? How is ROI calculated? How is ROI used? ROI is used for investment analysis and for making business decisions but it also applies to life decisions.

As part of an email interview with John Hollyer, co-manager of the Vanguard Inflation-Protected Securities Fund, I asked, “How does the Vanguard Inflation-Protected Securities Fund differ from other TIPS funds?”

Almost all investment literature warns you that past performance is no guarantee of future results. Many investors would do well to heed this advice instead of chasing hot mutual funds, sectors and stocks.

The Fund Analyzer offers information and analysis on over 18,000 mutual funds, Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs). This tool estimates the value of the funds and impact of fees and expenses on your investment and also allows you the ability to look up applicable fees and available discounts for funds.

Jonathan Clements begins this oldie but goodie article on choosing an actively-managed fund with: "It's like asking a vegetarian to name his favorite cut of beef."

Everyone’s tempted to base their fund buying decision on a fund’s performance, but that shouldn’t be the only factor you consider. Today’s star performer could easily become tomorrow’s laggard. FiLife offers some guidelines.

Morningstar introduces five questions you need to ask and answer before buying a stock fund.