Look Further Than a Mutual Fund's Name When Investing

Mutual fund managers are required by the Securities and Exchange Commission to keep 80% of their assets in securities closely related to a mutual fund's name. This rule, however, is targeted only at those funds that use descriptive names (i.e. ABC Biotech Fund or XYZ Latin America Fund).

Funds that use non-descriptive terms for their fund names are not affected. Thus, while a mutual fund's name may describe its objective, this is often not the case. That is why it makes sense to look past the fund name to the fund's objective.

The fund objective describes the investment goal. Make sure that a mutual fund's objective matches your own investment objective. The following table outlines the four main categories of mutual funds and their respective objectives.

Fund Type Objective Money Market Fund Preservation of Principal Bond Fund Produce Regular Income Balanced Fund Provide current income and long-term growth Stock Fund Provide growth from capital appreciation

How Many Mutual Funds Should I Own?

There is no simple answer as to how many mutual funds an individual investor should own. This number depends on some very personal investor characteristics, including tolerance for risk, comfort with investing, knowledge, investment goals, and time horizon.

Watch out, however, for portfolio overlap with the funds you do select. Portfolio overlap occurs when funds appear to have different investing styles; however, invest in the same market sectors and often hold identical individual securities. Many websites can analyze an entire investment portfolio for portfolio overlap. Just type "portfolio overlap" into an Internet search engine for a list of websites that provide this useful tool.