by Erik Van Tongerloo

Created on: January 20, 2009   Last Updated: September 21, 2009

Mutual funds are a popular investment instrument and everyone will search these which will benefit their investment portfolio the most. How you best select a mutual fund is a difficult question because you only know statistics from the past and these doesn't guarantee success in the future. You can find information in financial magazines, for example, Money 70 and you can check the rates of Morning Star which give you an insight in the world of mutual funds. You need to be careful with the Morning star rates because it's possible you will take more risk than you can afford and you can't see if something is changed in the strategy of these mutual funds.

There are no mutual funds which are suitable for every investor and it is important to do your homework before you select a mutual fund. The main factor to have success in selecting a mutual fund is searching through all the mutual funds which matches the objectives of the investor. Determining your risk profile and your future goals are the first things you need to do before you select a mutual fund. Everyone wants to reach the highest return but it is possible you take more risk than you afford if you invest in such mutual funds and it is possible you may lose a lot of money. Mutual funds with the highest returns are often these where you can also make more losses than the average mutual funds. Nobody can predict the future and there is no guarantee you will earn money with one particular mutual fund or even with several mutual funds.

The main advantage of mutual funds is diversification but you can go wrong if you diversify in the wrong sectors or your investment is not conform your investment profile. There are several types of mutual funds and if you select only through mutual funds which invest in stocks; it is possible you take a higher risk than you can afford. Everyone needs money for short-term and long- term goals; selecting the right mutual for you depends on your individual needs and risk tolerance.

Here are some important factors which may help you to select a mutual fund:

1. Determine your risk tolerance

Knowing your risk tolerance is the most important factor when you want to select a mutual to invest. Equity funds will likely reach higher returns on the long run but you can also lose more money. Your age and your expected earnings are important issues if you want to determine your risk tolerance. People who struggle every month to pay all their bills or they reach the age of retirement have a

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