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Subject:  Re: choose funds for 401k - help needed Date:  12/5/2005  3:44 PM
Author:  Fuskie Number:  13553 of 18062

I look for 7 basic things in a mutual fund.

1) Dividend Yield. I like funds produce income as well as growth, especially if I am holding positions within a Roth IRA as those dividends are tax free.

2) Expense Ratio. I like funds that are cheap to manage. No Load funds are a given, so I look for funds that have expense ratios at least under 1.00 and preferably under 0.50.

3) Management Tenure. The number of years the fund has been lead by the same manager is key to understanding the investment approach they have undertaken. Similarly, having confidence that tenured management will continue on after you stake your position.

4) Turnover. Funds that have a high turnover rate are often more expensive and indicative of either a speculative or scrambling investment style. I prefer the the buy-and-hold strategy that turnover rates under 50% may reflect.

5) Morningstar rating. 5 stars means silk sheets and mints on the pillow. Pick your rating system but if the mutual fund is hitting on all cylinders, analysts will recognize it.

6) Weighted Return. I get a lot of complaints on this one, but I value a long consistent history over short term performance. So I give more weight to 5 and 10 year performance over 1 and 3 year performance. What I look for here is consistency during different market conditions as opposed to astronomic returns.

7) Projected Year-End Yield. Past performance is no indication of future returns, but I try to prognosticate by taking the YTD yield and pretending that the fund will continue to perform through the end of the year as it has to date.

After this, it becomes more subjective. Does the fund fit in with my asset allocation and diversification strategies? After reading the prospectus, do I feel comfortable that I understand the fund's objectives and strategy? Is this the best fund among its peers for the category?

Who hopes these and other ideas give you the tools to dig into your 401k plan's options...
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