Investing in mutual funds has long been a cloudy, often intimidating process for individuals. The difficulty in comparing different funds has led many of us to put the decision-making into the hands of financial advisors who, conveniently, find funds that kick back the juiciest commissions. It doesn't have to be this way. Today, there's absolutely no good reason to pay a front-end commission or "load" for mutual fund purchases.
Following the steps below, you can find a "no-load" fund to match even the most narrow investment objectives -- all in less than an hour, and all free-of-charge.
Here's how I found a mutual fund custom-tailored to my portfolio:
First, I had to decide where the weakest spot in my portfolio was. At CBS Marketwatch, the building my own portfolio tool suggests that my next step should be an International fund. The site also conveniently lists the top twenty-five funds for each category that I need in my portfolio. But looking at that list doesn't tell me much, other than 3-year returns. Time to do some screening.
Next I head to MoneyCentral's Investor Easy Fund Finder, a very simple interface with a scant seven variables and basic explanations of what each one means. My search turns up twenty-five funds, many of which look promising. The site includes some of the best plain-English discussions anywhere of each fund's strategy and history.
I try two more fund screening tools: Quicken's Mutual Fund Finder, and Thomson Investors Network's Fund Screener. Both are far more complex than the prior two, but while I find a list of eleven good candidates at Quicken, there are no links to individual fund profiles, and Thomson's tool is even more confusing, with myriad options that I can't seem to jigger to the point where I get a list of foreign stock-only funds.
Time to compare the funds I've found, head-to-head. There's no better place for this than Morningstar's Fund Compare tool. I enter all the fund symbols I've collected from the various screening tools, and presto: an instant comparison, with an astonishing array of variables by which they can be ranked, from Morningstar ratings to expense ratios to manager tenure. I do wish there was a way to compare funds based on more than one criterion at a time -- say, the funds with the best combination of category risk, 5-year tax ratio, and median market cap of holdings. Sure, I can re-rank the funds according to each of these, and then try to remember which ones keep showing up near the top of the lists. But I'd rather have the machines do that.
Nevertheless, I quickly find that four of my candidates stand head and shoulders above the crowd in terms of matching my personal needs. Time to find out the current scuttlebutt on my four finalists.
Fund Alarm is a great tool for finding out the latest news (particularly when it's bad) about individual funds. None of my four candidates show signs of danger, according to this site. Brill's Mutual Funds Interactive offers quite a large number of fund manager profiles, ditto MarketWatch's Betting on the Jockey. However, once again I learn nothing of concern about my four.
So back to Morningstar, which offers individual, searchable profiles of my four funds, showing all manner of variables, including relative risk, top holdings of the funds, and a bit of info on fund managers. I learn one thing I'd missed before: one of my funds is an Advisor fund, which means I can't get it through my TD Waterhouse account. So now I'm down to three candidates. Following links from each of the funds' Morningstar profiles, I download and skim their prospectuses in Acrobat format.
In the end, I decide on the fund that showed up most often and most positively in all my searches. I'm sure either of the other two final candidates would have been safe bets too. Total search time, including unearthing the tools you just learned about (and others that didn't merit mention): five hours. Follow my links and your hunt will surely be much faster -- and just as rewarding.
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