Need advice on how to pick a fund?

[Gemini9981]

Hi everyone,

I opened an IRA with Fidelity a couple months ago and am ready to start investing some of my money in it in a mutual fund, but I have no idea how to pick which fund to invest. I can tolerate risk since I am young and have plenty of extra savings. I have $4,000 in the account right now in a money market and want to move about $3,000 into the mutal fund or stock. Do you think this is an ok amount ot start out with?

I'd appreciate any advice on how to pick a fund.

What are the top things you look for in a fund that help you decide if it would make a good investment?

Any recommendations would be helpful. When I asked the Fidelity representative, she just suggested one of the fidelity freedom funds, but those don't seem very risky, I'd like more of an earning potential, and I'd like to take a more active part in my investments.

Thanks,

Gemini

[jIM_Ohio]

I look for a core fund. A Core fund is something you are comfortable buying in any market condition if you have no better ideas for what to do with money.

My core fund is PRFDX.

Look for:

1) diversified- holds at least 100 stocks
2) in multiple sectors (financial, tech, utilities, consumer durables etc...)
3) has LONG TERM performance as a fund- probably 5 and 10 year history
4) Long term performance of at least 8% on average over 5 and 10 year periods
5) Expense ratio below 1%, and preferably lower than .75% for US domestic large caps
6) if a managed fund, make sure the manager has been there 5-10 years.

[Scanner]

7. Do a no-load over a loaded fund.

I realize your company may not give you that option.

Also, a piece of advice - it may be touchy, feel-goodey, new-agey - but I think there's something to be said for investing in something you beleive in or would put your money in.

If you are a small business person, for instance, going with a small-cap, a well-managed one, or an indexed small-cap, may not be a bad idea.

If you are like my wife and loves Disney and Coke, you put your money in Blue Chips.

You'll discover there are dozens of ways to skin a cat so to speak. So put your money in what you think your investment philosophy over the years may be.

I don't have a "core fund" so to speak but most investors do.

[Ima saver]

I like plain old Index funds.

[disneysteve]

I like plain old Index funds.

Same here, especially when just starting out. As a first holding, I'd go with a total stock market index or an S&P 500 index. As your money grows, you can expand to include foreign stocks, small company stocks, real estate (REIT) and other asset classes, but starting out I'd go with one good broad fund.

[Scanner]

Without sounding too preachy, I'd thought I'd tie a little into a discussion on my other thread on rebalancing and how you would develop your investment philosophy (which helps you pick your fund).

Here are my beliefs about the next 30 years:

1. International companies will continue to outshine American companies. I believe the Bush Administration upstarted by the Clinton administration has made this a truth. America will still play a part in the global economy but somewhat less than in years past.

2. I beleive that with an expanding global population resources will be stretched and tested, more than ingenuity can keep up with it.

3. I believe we will see more terrorist attacks.

4. I don't have the skill to pick individual stocks.

5. Until healthcare is fixed, entrepreneurism in America will be stifled.

So, I developed my portfolio around these beleifs (of course subject to change).

So, to me, it's not about picking the fund (because I'm sure there are 50+ International funds out there) - to me, it's about constructing your portfolio around core beleifs about the future.

You can't be too much of a futurist but I think you have to try a bit and then hedge.

However, if you are totally lost and don't have a philosophy yet, yes, picking a S&P 500 is a nice "vanilla" way to start. And there's something to be said for vanilla.

[savingandinvesting]

Funds

I agree with most of the comments on here.
For a first stock fund you want either US or developped global (incl. US), which means that index funds are a great option - many studies have shown that it is not worth having active management in markets where there are so many investors (developped). I would diversify globally though and even diversify beyond just stocks - i.e. ensure that you have perhaps 5 assset classes that won't all move together in the short-term, but where you have a good reason to believe they will all go up over the long-term. Exact weightings depend on so many factors incl. age, plans, family etc. but index for developped and diversify would be 2 things to focus on.

[Gemini9981]

Thanks everybody for the good advice!

[QueenOphelia]

I too have Fidelity and have around 30% of my IRA in International Funds. These are all no-loads:

BJBIX = Julius Baer International Equity------86% increase since 2004
FIGRX = Fidelity International Discovery-----73% increase since 2004
FIVFX= Fidelity Aggressive International----53% increase since 2004

I have a bunch in medical funds as well:

FSHCX = Fidelity Select Medical Delivery---53% increase since 2004
FSPHX = Fidelity Select Health Care--------15% increase since 2004

I think Fidelity has a really easy to use interface and find them to be quite pleasant to deal with.