The absolute best advice I can give you is to tell you to get professional advice. Run a Google on "Financial Advisor" in your area ans schedule an appointment. It's free. Did you get that. FREE. Then, go to another Advisor and set another appontment. Once again, it's FREE. They will custom build a plan for you. Every major firm has excellent educational materials that you can get for... yes... FREE.

Every brochure they show you has to undergo the most stringent regulatory review by FINRA. This is the most heavily regulated industry in the US... especially now. Will they try to sell you stuff? Of course, that's what they do. Do you have to buy it? No.

A recent study by Brinsom showed that 93% of portfolio perfromance has nothing to do with the individual securities (or mutual funds) in the portfolio, but the allocation of each asset class within the portfolo. What does this mean then? When you think about active vs. passibe management, trading styles, market timing, etc... all of those factors you hear on CNBC every day only account for a combined 7% of the portfolio performance.

So, what allocation should you use? It depends on several factors like financial objectives, time to goals, risk tolerance, etc. There are free models you can find online, or you can sit down with a professional who can walk you through the process at no charge.

As far as your criteria goes... there are funds with no 12b-1 fees. The "load" question can be a little complex. Most funds have A shares and C shares. Numbers vary, but many people avoid the A shares which may charge, say 3% or more up-front, but nothing after. Instead, they will pay .5% (or more) every single year forever. If you are planning on holding the security for a long time, you may be better off paying the fee up-front.

Turnover rate really depends on the goal of the fund, but, generally speaking, lower is better. Expense ratio... well... it depends on the money manager. Good managers are expensive and bad ones are cheap.

Lastly, the part about 8% return.... well... nobody knows. NOBODY. The world could end tomorrow. Martians might attack. Nobody knows the future and nobody can predict the future.

In fact, if you follow Morningstar ratings, this year's winners are rarely last year's winners and the year before had different winners, etc. I have only met one man who can consistently and accurately predict the future. Unfortunately, I misplaced his number, so I can't help you out on that one.

The game is really all about diversification, allocation, re-balancing, correlation, standard deviation, beta, alpha, and (most importantly) discipline. These are the things we can attempt to control. Returns are beyond us all.

posted March 13, 2010

Hello Shekhar,

Perhaps one critical factor you should also consider is who manages the mutual fund and for how long have they been doing it? (for actively managed funds). If you are buying into an actively managed fund, your are buying the manager (and his/her team). I tend to focus on the managers with at least a 5 year track record for a given fund, unless you know of thier previous track record at another fund(s).

A low turnover rate itself is not necessarily a good thing. If you are in a tax deferred account (ira, 401(k) etc), or in an asset class that lends itself to higher turnover (small cap growth perhaps), you should not necessarily exclude higher turnover funds.

I would conclude by adding that the advice to use a professional (fee based advisor) to guide you that was mentioned above is sage advice, as is proper diversification.

Good luck.

posted March 13, 2010