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overall state of the economy. For example, while gold funds have performed spectacularly over the past few years, funds invested in financial and real estate companies have performed poorly. Therefore, it's best to look at their performance over an extended period of several years, preferably in a chart format that displays the overall trend. The best funds will exceed the rate of return of the Standard & Poor's 500 Index, which has delivered a 6% annual return over the past decade, assuming full reinvestment of dividends. This rate was achieved in spite of two bear markets that occurred during the same timeframe.

How much you invest, for how long, and where you put your money depend on several factors including disposable income, risk tolerance, and age. For most people, the best idea is to start slowly and choose a few different funds to test the water. Young people can absorb more risk and should focus more on growth funds that are banking on the future, rather than value funds that are more appropriate for those relying on dividend income. The best advice is to be careful and thorough before sending your hard-earned cash to anyone else for their safekeeping. Mutual funds are not guaranteed to succeed, and some have been known to fail.

Learn more about this author, Michael Sanibel.
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