4 Ways to Spot a Great Investment
from daveramsey.com on 27 Jun 2013
Living on a budget, paying off debt, and building a solid emergency fund are the initial steps in wealth building. They lay the foundation for the next stage: growing your money over time.
Your success in this stage will depend on the quality of the mutual funds you choose, so it’s important to avoid wasting time on the wrong funds. Whether your investing goal is to save up for your dream home, build a generous retirement fund, or both, funds with these four characteristics will give you the best chance to reach those goals:
- In the Right Category – Dave recommends four types of mutual funds: growth, aggressive growth, growth and income, and international. This combination gives you a mix of mid-size companies, big-name companies and up-and-comers so your investments work together as a team to reduce your risk and maximize your returns.
- Showing Some Age – Choose mutual funds that have been around a while—at least five years, but 10 years or more is even better. You want a fund that’s posted above-average returns for its category in up and down markets.
- Cost Effective – Mutual funds that charge fees when you invest are called front-load funds. Those that charge when you sell the fund are called no-load funds. Either type can work well in your portfolio, but front-loaded funds give you the advantage of professional investing advice since they are purchased through a broker-dealer. Mutual funds also have yearly maintenance fees, which are measured by their expense ratio. A ratio higher than 1% is considered expensive.
- Seeing Stars – Morningstar, a highly respected investment research company, rates mutual funds based on these and many more factors. You’ll find a fund’s Morningstar rating in its prospectus and on many online mutual fund research sites. You’ll want funds that have a four- or five-star rating.
How to Find Your Perfect Fund
Does the idea of sifting through all those mutual funds sound like an overwhelming task? It could be, if you tried to tackle it on your own. An experienced investing advisor has the time and the know-how to find funds that will help you feel confident about reaching your investing goals.
If you’re looking for an investing advisor you can trust, you can search Dave’s network of top-notch professionals who agree with his investing philosophy. See who Dave recommends in your area.