How to Pick the Best Mutual Fund

Mutual funds can be a very useful tool to help you achieve your financial goals - IF you pick the right funds. While there are some excellent, well-managed funds from which to chose, there are some real dogs, too. And that's where investors often get stumped. With so many choices, finding a solid fund is like finding the proverbial needle in a haystack.

Let us simplify the process for you. Here are three steps to selecting the right mutual fund:

1. Carefully analyze the fund's long-term performance. Funds of the same type can have widely different performances, depending on their managers' success in choosing investments. While it's true that past performance is no guarantee of future results, it can still be a darn good way to measure the quality of funds. And while performance should never be the only reason you invest in a fund, it is extremely important, because after all, the goal of investing is to make money! Just keep in mind, as you peruse the fund's returns, performance over a one-year period is pretty meaningless. Any investment can have an excellent or a terrible year. To effectively gauge a fund's real performance, it's essential that you look at its returns over a period of time – preferably over the last 5, 7 and 10 years.

Think of it this way: No doctor is right 100% of the time. But wouldn't you feel more comfortable going to a doctor you knew had been right 99% of the time in the past? We would, too! The same is true of mutual fund managers.

You can find a lot of this information simply by looking up quotes (using the fund's trading symbol). You can do it right at Dolans.com. Just click on the "Invest Wisely" tab, and you'll see the box in which to enter the fund's symbol. You can also check on other websites like AOL Money, Yahoo finance, etc.

For our money, the best place to look for up-to-date information about a mutual fund's performance, as well as news and analysts' research, is the site run by Morningstar. Most of the information on the site is free, but with a premium membership ($15.95 a month, $145 a year, or $245 for two years), you will get access to the most advanced research, news and rankings of funds as well as individual stocks.

Straight Talk Tip: Here's a tip for you: Morningstar will let you try the premium membership for 30 days free. If you invest with mutual funds, try it for a month and see if it's worth the investment for you.