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Scott Tominaga on Choosing the Best Mutual Fund.
A mutual fund is an investment product comprised of a pool of money from many investors. The pooled fund is used to invest in securities like bonds and stocks. There are many types of funds available. For some investors, this vast number of available products can be overwhelming. Scott Tominaga shares some tips on how to choose the best mutual fund.
Identifying Goals and Risk Tolerance
Before investing in any asset class, you must identify your investment goals. Is your primary objective capital gains, or is income more important? Will you use the money to pay for your college tuition or to fund a retirement that's years away? Identifying your goal is crucial in choosing a mutual fund to help you achieve your financial goals.
You should also know your risk tolerance. Can you accept dramatic swings in portfolio value caused by market volatility? Or do you prefer a more conservative investment approach? Risk and return are directly proportional, so you must balance your need for returns against your ability to stomach risk.
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Loads and Fees
Scott Tominaga explains that mutual funds make money by charging fees to investors.
Most funds charge a sales fee known as a load. Investors will be charged at the time of purchase or upon the sale of the shares. When you buy shares in the fund, a fee from your initial investment is called a front-end load. A fee that must be paid upon selling your shares is called a back-end load. The back-end load applies if the shares are sold before the time set by the fund, typically five to ten years from purchase. This charge is intended to discourage investors from buying and selling too often. The fee is usually the highest for the first year you hold your shares, then decreases the longer you keep them, explains Scott Tominaga. Before purchasing, understanding the different types of loads and fees associated with a fund is important.
Scott Tominaga, the Chief Operating Officer of PartnersAdmin LLC, is an experienced professional in the areas of middle and back office, accounting, compliance, and administrative functions within financial services firms. He also interfaced with fund managers and professional service providers to establish efficient, transparent operations and reporting structures. For more about his work, visit this page.
