Important factors to consider before investing in mutual funds.

• What is your risk tolerance? Are you conservative, aggressive, or somewhere in between?
  • The greater the risk, the higher the potential of earnings and conversely the greater potential for loss.
• What will be your tax risk?
  • The tax laws may change eliminating tax benefits for a specific investment.
• What is the track history and stability of the fund's management?
  • Does the management change every year or so? How do the fund management's operating expenses compare to the fund's assets?
• What is the rating for the fund?
  • A good independent company to check the rating of a mutual fund is Morningstar. Refer to their web site at http://www.morningstar.com to read information about that fund and to determine the one to five star rating for the fund. Try to stick with funds having four or five stars and some with three stars.
• Does the fund have a sales charge or not?
  • Some funds will not have a sales charge and thus are referred to as no-load funds. Other funds are referred to as loaded funds that have a front-end load (Class A shares) or a back-end/deferred sales charge (Class B shares). The fees can represent the level of service received when working with a sales or support person for the transaction. Typically (but not always) the more you pay, the greater the service received.
• What is the minimum initial investment and monthly contribution requirement?
  • Many funds require a minimum balance of $500 - $3000 to start an investment. This high initial investment can be avoided by providing nothing down or a small portion of the required initial investment and agreeing to invest monthly ($25 or $50) via automatic bank withdrawals until the minimum balance is reached.
• When do mutual fund transactions occur?
  • The value of mutual fund shares are calculated after the stock market closes at 4pm EDT. The reason is because mutual funds consist of a large number of stocks whose values are constantly changing throughout the day. The result is that the value of mutual fund shares cannot be calculated accurately and quickly enough to provide real time quotes in the same manner as the real time quotes for individual stocks. Therefore, the solution is to wait until the market has closed to calculate the value of mutual fund shares. The explanation was valid years ago before very fast computers existed that are able to handle the calculation needs. Although, to keep with tradition, the principles have not been changed. In order for a mutual fund transaction to occur, the order must be placed before 4pm on the day the stock market is open. Otherwise, the transaction will not be executed until 4pm EDT on the next day the stock market is open even if the order was placed at 4:01pm.
• Are there yearly fees for an IRA account?
  • The laws established by the IRS for these types of accounts have additional custodian charges associated with them in which some companies pass along to their customers as a custodial fee. The costs could be a yearly fee, a setup fee and a yearly fee, or no fee at all. Ask the company the amount of their custodial fee before opening an IRA.

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