When I hear my clients ask me this question I do not think they realize they are actually asking two separate questions. One, is the mutual fund they are asking about a good sound investment? Two, is this mutual fund right for me? You need to remember this when researching mutual funds for your portfolio. Let's examine a little closer:
1. Is this mutual fund a good sound investment? There are thousands of books and articles that can show you how to answer this question. I am not going into here. But you NEED to do your own due diligence on whether the mutual fund is a good investment or not. Only when you have convinced yourself that it is truly a good investment can you ask yourself the second question.
2. Does this mutual fund fit in your portfolio? The first thing you must do is figure out your portfolio allocation. How much do you have in large caps, small caps, growth, value, international? You get the picture. Now, by adding this investment will it overweight you in a particular category? If so, can you sell another mutual fund in the same category to make room for this one? Will this mutual fund bring too much risk into your portfolio? If so, this mutual fund may not be right for you. You need to be sure that the new mutual fund "fits" in your allocation.
With these two simple questions, you can decide for yourself if a mutual fund is good for you.
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