Which mutual funds should you choose?

Their is much debate on what types of mutual funds one should invest in. Their is also the debate of how much to put into small, medium, and large companies and also international versus domestic stocks. The same is true for domestic and international bonds and short, medium, and long term. It is a lot of information to take in on a very important subject. Our investment choices affect how and if we reach our goals.

Index funds are the best choice no matter what your goals are. They come with the lowest cost, follow the overall stock market, and you can quickly see how you are doing. Most other types of funds come at a much higher cost, cannot outperform the market in the long term, and frankly are a waste of money.

They key is to have a good mix. You first have to determine what mix of stocks and bonds is right for you. I will use 80% stocks and 20% bonds as an example. These two have to be broken down into subcategories. Stocks - International and Domestic. Bonds - International and Domestic. The exact percentages you will use are based on your beliefs and risk tolerance.

From here you have to break down each one into small, medium, and large cap stocks and short, medium, and long term bonds. This goes for international and domestic. Index funds do exist for all of these types. Vanguard is a good place to start looking. Index funds of the same type do not vary so you should choose based on expense ratio. Invest in the ones with the lowest expense ratio for each type.

Once you have your percentages set and your funds picked you are ready to being investing or adjusting your current investments to match. Once you have your plan in place you can adjust yearly as needed and re-balance. This part of the process takes a while but is the most important. Do your homework and you will be well on your way to meeting your goals!