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Five Questions to Ask About Your Mutual Fund

The recent scandal involving alleged improper trading by big investors will likely result in tough regulations by the Securities and Exchange Commission (SEC). What’s a small investor to do in the meantime? Ask these five questions about your mutual fund.


1) Did I pay a sales charge up front? If you’re paying 4% to 5% of each investment right from the start, consider changing advisers for future money and seek out “no load” funds with no initial sales charge.


2) How much do they keep charging me? Find fund expense ratios at www.morningstar.com. Ron Roge, a Bohemia, N.Y., financial planner who manages money for clients, suggests these limits for fees: For large-company stock funds, keep your expenses below 1%. For research-intensive small-company stock funds, stay below 1.5%. For bond funds, stay below 0.75%, except for high-yield bond funds (often referred to as junk bonds) where 1.0% is reasonable.


3) Who’s managing this fund? Check out Morningstar’s manager-tenure number in its Snapshot; a strong fund performance may not mean much if most of it was compiled by a now-departed manager.


4) Do the managers invest in their own funds? If so, they are less likely to make improper short-term moves that hurt the average shareholder.


5) Are they running up my tax bill? Check out Morningstar.com fund Snapshot for the “Annual turnover %” figure. A 100% turnover is doing a lot of trading and could cost you plenty in taxes.

Of course, individual circumstances vary. Consult a financial adviser for help with your particular situation.

Copyright 2004 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.