Investors who take on a lot of risk expect a greater return from their investments, but they don't always get it. Other investors are willing to give up the potential for large gains in return for a less bumpy ride. Consider a fund's volatility in conjunction with the returns it produces. To set realistic expectations for what a fund can do for you, it's important to know what types of securities a fund's manager buys. Don't rely on a fund's name to tell you what it owns.
Fund managers can buy just stocks, just bonds, or a mix of the two.
They can stick with U.S. companies or venture abroad. They can hold popular big companies or obscure small companies. Finally, managers can own 20 or 200 stocks. To get a feel for how a manager invests, examine a fund's portfolio. Because the fund manager is the person most responsible for a fund's performance, knowing who's calling the shots, as well as how long he or she has been doing it, is essential to smart mutual fund picking.