You may have just recently started a new job or opened a new retirement account and may have been asked to pick the funds for your retirement investment.
You then proceed to pick several funds you knew nothing about sign the paper and moved on with life. However did you know that most people who sign up for their retirement funds have never been educated on the choices to help them get the best mutual fund performance. In this article I’m going to cover a few mutual fund basic strategies that will help you pick the best funds.
Know What Kind Of Funds You Have
The first thing you need to do is know what kind of funds you have. Their are 3 basic types of funds. The first is large cap funds, these are funds that invest in large cap stocks like Walmart, General Electric, and Johnson and Johnson. These companies are typically more stable and earn more predicable returns. However they will not see huge returns since they are big companies.
Then you have medium cap companies, these are companies that have between $5 and$15 billion in assets. They are not as stable but also earn slightly better returns.
Finally, you have small cap companies which have less than $5 billion in assets. These companies are like the next Microsoft in the stock world. They haven’t made it big yet which makes them more speculative and risky in the investing world.
These companies will be far more volatile however they will also have a better chance of seeing higher returns since they are smaller companies and still growing.
How You Should Invest Your Money
Now that we know the basic types of funds out there you may wondering how to pick these funds for your investments. Below is a simple way to pick your funds based on your age.
- Age 18-40. At this age you have a long time until you will retire so putting 80% of your money in large and medium cap stocks is OK. The remaining 20% should go towards small cap stock to give you the advantage of earning higher returns.
- Age 40 – 60. At this point you should be cutting back on the speculative investments and pushing more towards more stable investments. Put no more than 10% to 15% to small cap investments and the rest into large cap, bonds, and money market funds.
- Age 60+. At this point you will want to move all money out of speculative and small cap funds and move everything towards more preservative investments like large cap funds, bonds, money market funds, and even fixed accounts.
Following the guidelines I have given you above should help you stay out of the risky investments and help you have a long and prosperous retirement.
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