You’ll want to do the appropriate research and compare mutual funds before investing. You can do this the easy way, or the hard way, depending on how involved in your investment process you like to be. Many people buy mutual funds based off the recommendations of a financial advisor. This is not a bad idea, as long as you are working with a reputable financial advisor who has both a good record and your best interests in mind. You can also take the time to compare mutual funds’ performance records and ratings on an independent rating Web site such as www.morningstar.com. and then choose funds on your own.

What Mutual Funds Do: In order to compare mutual funds accurately, you have to understand the basics behind how mutual funds work. Mutual funds spread your investment over a variety of stocks, bonds and securities. Each mutual fund’s performance will depend on the performance of the individual stocks, bonds and securities to which that fund is tied.

Fees: When comparing mutual funds, you’ll first want to note if there are fees above and beyond the transaction fee (which is a given), and who benefits from the fees charged. If your financial advisor benefits from the fees charged, check into that mutual fund a little more carefully, since your advisor may be guiding you toward that fund out of the desire for the financial bonus instead of giving the available funds a truly good analysis.

Performance: You’ll want to start tracking mutual fund performance and learning about mutual fund ratings. Subscribe to a website like www.morningstar.com. and get to know the reasoning behind the ratings given. Mutual funds are compared to their competitors as to safety, volatility, rate of return, past performance and predicted performance. All these factors are rolled into a rating-two stars, four stars-and then written summaries about the particular funds are discussed on forums and in articles. However, past performance does not indicate future results. No matter how highly rated a fund is, it can still falter in a bad economy or if it changes management.

Your Risk Tolerance: All investments involve risk, but you need to know how much volatility you can handle. Willing to take high risks? Want to play it safe? Then check out the safer mutual funds, like bond mutual funds, or riskier mutual funds, like international stock mutual funds. You can choose mutual funds that are tied to a specific industry sector or one that is spread out over investments all over the world, depending on how much diversification you desire in your portfolio.

Talking to an Advisor: However, the actual number of mutual funds is so overwhelming that most people do not have time to do this kind of research adequately without the help of a financial planner. You’ll probably want the advice of a trained professional who analyzes mutual funds every day for a living.

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