How To Conduct Research Before You Invest

conducting research

 

It is extremely important to conduct research before you invest your money into mutual funds or exchange traded funds (ETFs).

You will need to consider the investment objectives, risks, charges and expenses of the fund before investing in the fund(s) or ETFs.

Keep in mind the higher the load and/or sales fees and expenses the lower your investment return will be.

Without conducting research before you invest money into a ETF or mutual fund your chances of picking profitable investments diminishes.

Conducting the research using Fidelity brokerage account research information

Since my investments are all with Fidelity I use there investment tools and information as part of my investment decision making process.  This information is provided to me for free.

Back in the 80s when I was selling mutual funds I would use periodicals, investment magazines and whatever other information I could obtain such as the mutual fund prospectus and Statement of Additional information to learn as much as possible about mutual funds.

Before you invest I highly encourage you to read the prospectus of the mutual fund.

Some of the important things to look for before you invest

This list is nowhere near conclusive on conducting research before investing.

Is there a load for this fund/ETF?  If so how much?

What is the fund inception date?

How large is the fund, in millions of dollars?

What are the fees and expenses?

Look for funds with a 1.0% expense ratio or lower.  Anything over 1.0% is too high for a fund investing in only US corporations.

Funds that invest primarily outside of the US will usually have higher operating expenses.

The funds expense ratio may be a little over 1.0% for funds that invest outside of the US.  For example, the Fidelity Emerging Asia Fund – FSEAX, has an expense ratio of 1.11%, which is fine since it costs more to manage corporations outside of the US.

How much turnover does the fund have?

According to Fidelity, the FSEAX fund has a very high turnover rate – 117%.  I am perfectly fine with that since it is a fund that invests in companies in emerging countries in Asia.

Japan is excluded from this fund.  This fund has a great short term and long term track record too.

This is not an investment recommendation for the Fidelity Emerging Asia Fund – FSEAX.  I am only using this fund as an example to help explain what I am saying in this blog post.

What is the minimum investment?

What is the overall star rating (number of stars from 1 to 5) of the fund?

Who manages the fund and how long has this manager been managing funds and managing the fund I am interested in investing in?

What does this fund invest in?  Each fund has specific types of securities they invest in.  For example, an S&P 500 index fund would invest in stocks that are in the S&P 500.

A health care fund would invest in businesses in the health care industry.

The fund manager can’t deviate from what is stated in the prospectus.  The fund prospectus may state that at least X% of the fund will be invested in the specific industry.

The remainder of the funds investments may be able to be held in cash or some other types of investments as specified in the prospectus.

I want to know the three year and five year performance of the mutual fund or ETF.  If the fund or mutual fund has not been around at least three years I normally don’t invest in that fund/ETF.

The one year track record means very little to me.  Anyone fund manager can hit a home run once.  I want to see funds and ETFs performing well for at least the past three years.

 

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The ten year performance, or the life of the fund if it has been around for less than ten years.

Then I want to know how well this fund has performed when compared to similar funds.  Fidelity provides a list of investments and ranks them so you can choose the funds that are considered to be the best performers based upon the funds past performance record.

I also want to know if this investment is within my risk tolerance.  If this investment is considered to be high risk and I only want low to moderate risk investments I won’t invest in this security.

What country/countries does the fund invest in?  Is the fund only investing in companies that are based only in the US or can/does the fund invest outside of the US.

Investing outside of the US opens up more risks.

Fidelity provides a chart of the funds past performance.  When looking at the chart you want to see a nice upward trend when looking from left to right.

You can use the chart to compare numerous mutual fund and ETF performances.  You can compare four or five funds at a time.  That way you can find the best performing one out of a number of funds you are interested in investing in.

Simply click on the name of each fund right above the chart so that you can eliminate one fund at a time.  Then click it back on.  This will help you distinguish each fund in the comparison.

Always remember that past results are no guarantee of future results when it comes to investing in securities.

If you see a funds chart going downward instead of upward that tells you that this fund is not performing well.

Of course you have to take into account that all equities tanked due to the pandemic that occurred in the beginning of 2020.

But, the equity markets bottomed out in March 2020 so any fund still going downward instead of reversing and going upward now is not performing well.

Ignore, one day,  one week and monthly performance results.  These are too short of a time period to give you a good idea of how well the fund performs over a long period of time.

Full disclosure:  I own a mutual fund that invests in companies outside of the United States.  The name of this fund is Fidelity Emerging Asia fund, symbol FSEAX.

Google is your friend when it comes to researching investments, use it.

For example, you can conduct a search on the big G for – best no-load technology, health care, etc. mutual fund or ETF.  Google will return a number of search results based on what you searched for.

If you have a Fidelity brokerage account you can be more specific about what you are researching.  For example, you search for – best Fidelity health care ETFs.

The search results provided by Google will list them for Fidelity health care ETFs.  You may see something like – top eight Fidelity health care ETFs.

If you find something you like you can go to fidelity and learn more about this particular ETF before investing.  Fidelity will also provide you with a prospectus that you can read online and/or download.

Taking the time to do your research before investing will pay off over the long term.

Please leave a comment below.

Happy investing.

Jim Juris Signature

P.S. If you think your friends would find this information beneficial, please share it with them. Thank you.

 

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