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Let’s take a look at $10,000 invested over 30 years with an average annualized gain of 10% (see chart below)

So high expense ration can really hurt your investment performance; therefore, you should consider the expense ratio carefully when investing in mutual funds. Alternatively, individual stocks and ETFs may make sense if you can invest enough money to overcome the trade commissions.




Here are a few basic rules I follow for investing with mutual funds.



• Invest in funds that do not charge Front-end Load — i.e., charge you before you can invest
• Invest in funds that do not charge Redemption Fee — i.e., charge you when you want to redeem your shares for money
• Invest in funds that have low expense ratio; preferably less than 1.0%. Index funds usually have expense ratio of 0.5% or less, making them the perfect candidates.
• Invest in funds with low portfolio turnover ratio. Lower turnover ratio means that the fund manager does less “buy & sell” and more “buy & hold”. This should make the fund more tax efficient and help you in the long term.
• Identify the right Asset Allocation mix based on investment goal, time horizon, and tolerance for risk.
• Diversify the investment portfolio among several funds. When selecting a specific fund, at least look at the Sector Allocation, holdings, PE, and past performance.
• Rebalance the investment portfolio at least once a year.

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