***Please note this is not to be taken as legal or investment advice as I am not a professional investor.
Do not forget to check out Part 1 and 2 of this investing series:
Part 1:
Part 2:
I have used this mutual fund investing strategies for years now and they have served me well.
Having a process for investing in mutual funds will be come key to your long-term investment success. Despite there being thousands of books out there on the subject of investing very few books or articles gives you a process for picking mutual funds.
My Mutual fund investing process is as follows:
1. Know what you are investing in - Learn as much as you can about the fund before you invest your hard earned money.
- What stocks does the mutual fund hold?
- What return on investment performance has the mutual fund had
over the last ten years?
- What fees are involved in this mutual fund?
- What industries does this mutual fund own?
2. High Return on Investment: If you are younger and can take more risk. I recommend doing it. The quickest way to sort through hundreds of mutual fund is to locate the 10 best performing mutual fund in your plan 401K Plan.
-This does not guarantee high returns, but it will at least help you weed out what hasn't been working quickly.
- Start by analyzing the which mutual funds have performed the best over the last 10 years, 5 years, 2 years, etc.
- If you can locate the best performing mutual fund in your 401K plan you will know historically what performs the best and how to get the highest return on your money.
- Most of the mutual funds in your employers 401k plan will likely not be that great.
3. Global Economy:
- What trends are you seeing in the markets. Where is the future headed?
- I wouldn't recommend investing in something that is becoming obsolete. Find the funds in your employers plan that are taking advantage of current trends or may start to take advantage of trends. These ideas will likely yield you the highest return on investment if timed correctly.
4. Minimum Rate of Return.
With inflation rearing its head I think it is important for us aim for a minimum rate of return above inflation. My personal opinion is inflation is around 3 - 5% and not 2% like the news and media likes to tell us.
My minimum rate of return i'm willing to accept in my 401K plan is 6% after fees are taken into consideration.
**Please note: if you are older or near retirement you might look at lower rates of return to protect more of your wealth. I think they key though is finding stable long term investments.
5. Risk Tolerance
ALWAYS take into consideration your tolerance for risk when investing. There is no guarantee of returns in the financial markets. Consider consulting with a financial advisor to help you get a better handle of what types of funds you should be investing in if you are unsure.
Links:
Investopedia 401K Basics:
How to select 401K Investments:
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The information presented in this video is not to be taken as legal or tax advice. MKChip is dedicated to teaching financial literacy and subjects that matter so you can live your life Uncaged!
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