by Victor J. Alfieri

Created on: April 11, 2009   Last Updated: April 12, 2009

The biggest mistake a person can make when trying to put together a portfolio on their own is picking an investment of any kind before do any due diligence. This due diligence involves researching the stock, bond, mutual fund, ETF, etc. but more importantly, it involves honest research of oneself. If this is not done correctly, an investment decision could have disastrous results.

The following questions need to be answered before someone ever types in a ticker symbol on a website or flips through the performance section of Barron's Magazine:

- What is my time frame?

- What is my risk tolerance?

- What is my objective?

Time Frame There is an extreme difference between someone who is saving money to buy a house in 18 months compared to another who is looking to use the funds for retirement 20 years away. The general rule of thumb in the financial industry is that any time-frame over 5 years, is considered long term. 5 years is usually a suitable length of time to ride out any fluctuations in the market. The shorter the time frame from 5 years, the more conservative the investment should be.

Risk Tolerance This tends to be the most difficult answer an individual has to answer. The two biggest enemies to investing are fear and greed, and the both rear their ugly heads when trying to decide what will keep you awake at night. It is very easy to say you are an aggressive investor when the stock market is up 30% in one year. The more important question you need to ask yourself is "how would you feel if that same investment was down 20% the next year?"

Objective Are you looking to put money in an investment and let it grow for 20 years or are you looking for something to generate income? Could it be a combination of the two? Maybe you're just looking to protect what you already have?

Now that you've answered these questions about yourself, now you can begin to search for a mutual fund. Be careful where you look for information. There is so much out there, and you want to make sure you are getting an objective opinion. You also want to make sure you are choosing a fund for the right reasons. There's a saying in the financial industry"Yesterday's winners are tomorrow's losers." Just because a mutual fund was up 19% last year, it does not mean it is the right investment for you. Performance, in fact should be one of the last reasons.

So you want an objective opinion and you want more information than performance. One of the best places to get the kind of information you are looking

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