The best mutual fund for you is the one that helps you reach your investing goal whether it be a down payment on a new home or retiring to Fiji.
Performance is the first thing everyone thinks of when it comes to mutual funds. If investing were a game pitting mutual fund managers against each other, performance would be the “scoreboard”. There are numerous sources for looking up mutual fund performance. You will see performance for different time periods ranging from 1-month up to 10 years. In general, longer is better. It is nice to see a track record of at least 10 years. This way you can determine whether the fund is beating it’s benchmark(the standard by which it is measured). For example, the benchmark for a Large-Cap mutual fund is the S&P 500. Over an extended period of time active funds should beat their benchmark. Passive funds or index funds should perform nearly equal to their benchmark.
The second thing to consider are loads, also known as sales charges or commissions. There are load and no-load funds. The term load describes a fee paid to purchase or sell a load mutual fund. There are two kinds of loads: front-end loads and back-end loads. A front-end load is paid when you buy a load fund. A back-end load is paid when you sell a load mutual fund; it is also called a redemption fee or deferred sales charge. Avoid all loads unless you enjoy giving away your hard-earned savings to rich people.
The third thing to consider is the expense ratio. Many investors overlook this aspect and shoot themselves in the foot before they even get started investing. The expense ratio is the percentage of fund assets that go toward the costs of running the mutual fund. If the expense ratio is 2% then each year your invested assets in the fund are reduced by 2% to pay these costs. Ideally, you want to own a fund with a low expense ratio (below 1.00%).
All of this info is readily available from websites like Morningstar and Yahoo Finance.
Take a little time to do your research. It will pay off in the end.