Investing alone can be as awkward as singing karaoke — it might make you feel self-conscious and unsure if you’re doing the right thing. That is why many small investors opt for mutual funds, which grant them access to professional money managing services.
Investing in a mutual fund is a big decision, with many factors to consider. Here is a guide to choosing the right mutual fund for you:
Understanding a fund’s investment style. A strong mutual fund should have an explicit investment strategy from the start. A lack of strategy could result in a style drift — straying from the stated investment objectives. A style drift could happen for a number of reasons, such as a changes to the portfolio, management restructuring or company growth. Investors tend to prefer more consistent funds with limited drift, as managers may start to take larger risks in order to avoid underperformance. However, you still want an element of style drift because completely sticking to the plan limits the fund’s ability to respond dynamically to market forces. When choosing a mutual fund, keep an eye out for those that are consistent and leave room for inevitable, natural divergence.