I recently opened a Roth IRA in the USA and I'm new to investing.
How do I research a mutual fund and what aspects should I analyze to figure out if it fits my investment strategy (I might not even have one yet)? There are many aspects that I came across like index based vs actively managed, fund's liquidity or volatility, possible fees, etc.. How do I find these information and what's their exact meaning?
I know this question might be a little open but I need some guidance...
Thanks
There is a lot of interesting information that can be found in a fund's prospectus. I have found it very helpful to read books on the issue, one I just finished was "The Boglehead's Guide to Investing" which speaks mostly on mutual and index funds.
Actively managed funds mean that someone is choosing which stocks to buy and which to sell. If they think a stock will be "hot" then they buy it. Research has shown that people cannot predict the stock market, which is why many people suggest index based funds. An index fund generally tracks a group of companies. Example: an index fund of the S&P 500 will try to mimic the returns that the S&P 500 has. Overall, managed funds are more expensive than index funds because the fund manager must be paid to manage it. Also, there is generally more buying and selling so that also increases the tax amount you would owe.
What I am planning on doing is opening a Roth IRA with Vanguard, as their funds have incredibly low fees (0.2% on many).
One of the most important things you do before you buy is to figure out your target allocation (% of stocks vs % of bonds). Once you figure that out then you can start narrowing down the funds that you wish to invest in.
