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7. Investing in Mutual Funds > It’s Your Money

It’s Your Money

Doing your homework before buying is the key to successful investing with mutual funds. Mutual funds don’t require as much research as individual stocks before you purchase or while managing your portfolio, but they do require some. First, you should choose mutual funds whose philosophy and performance match your goals and risk tolerance, so start by researching a fund’s philosophy, potential performance, and risks. Second, make sure that a fund is dependable and trustworthy to act as your fiduciary. You wouldn’t hand your investment dollars over to a stranger who walked up to you and proclaimed he was the best financial manager in the world—at least not without a serious background check.

Put any mutual fund you’re considering under the microscope before you buy. In particular, read the fund prospectus before you buy. Were you listening just now? Read the fund prospectus before you buy. Mutual funds must give you a prospectus when you buy shares, but by then it’s too late. With most mutual funds providing links to download their prospectuses online, you have no excuse. The SEC requires that mutual funds include specific information in their prospectuses and use a standard format to present key data so that you can compare funds more easily. Although prospectuses aren’t the lightest reading in the world, they include just about everything you need to know about a fund:


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