A mutual fund is only as good as its manager, so the question when looking into mutual funds is how to choose a good mutual fund manager. Mutual fund managers should have a long term record which speaks of experience and qualifications. They should also be able to speak the financial language while parlaying it into something that a lay person can understand. In the end, a good fund manager needs to be able to understand his or her clients and their needs, as well as the market, its trends and how to deliver high returns at low risk.
The first thing that an investor should be able to look at his how the fund manager has performed over a longer period of time. Has he or she outperformed the market, kept even with it or done not as well? Outperformance over the course of ten years is a good indicator that the manager has an understanding of market forces and how to make money from them. The performance needs to be proven, so get the documentation that proves the manager’s record.
People who are fund managers are not required to have any qualifications. Uncle Ray could run a portfolio out of his basement if he wanted. Good managers, however, may have one of a couple of qualifications. Chartered Financial Analyst (CFA) is the industry standard for fund managers. As a CFA, a fund manager has taken intensive tests that cover accounting, economics, securities analysis and portfolio management. A Certified Financial Planner (CFP) is for managers who tend to work with individuals. It includes information on insurance and estate planning.
While it is important for the fund manager to understand the financial industry’s jargon, it is also important that the manager be able to tell his clients what the jargon means. If you don’t understand what the manager is talking about, it is important that you ask questions so that you can understand. Some people will conduct an interview and pretend to understand what the person is saying, even when they don’t. No one should make this mistake when it comes to investing money with a person who runs a mutual fund. Ask questions until you understand the answers and then make a judgment based on the manager’s answers not on how you feel about him or her.
A great fund manager will be able to generate high income with low risk, and he or she can do this even when the economy and the stock market are in the tank. A keen understanding of how the market and other investments work is what is required to make these types of things happen. Someone who has a superior understanding of the market can change that understanding into good management techniques that allow the fund to grow whether it is a bull or a bear market.
The most important thing that a fund manager has is your best interest at heart. Someone who doesn’t take the time to listen to you cannot have your best interest at heart because he or she does not know what your interests are. A lot of fund management is going to be in the relationship of the manager and his or her clients. It is so important when investing that you understand the risks involved, and the fund manager should be willing and able to tell you not just when asked. He or she should be willing to discuss those risks with investors up front. Any manager that claims there are no risks and big rewards is not to be trusted. Getting a good fund manager can make the difference between enough money to retire on and having to work well past retirement age.
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