How to Select a Mutual Fund

What else should I look for in mutual fund selection?

In addition to no-loads and low expense ratios you should also look for funds that have low turnover ratios. The turnover ratio is what percent of the investments are bought or sold every year.

So a turnover ratio of 50% means that every year half of the investments are bought and of different investments are sold. Another way to look at it is turnover ratio of 50% means that every two years the entire portfolio is turning over and your time horizon when you're buying investment is only two years. Your investments have been only held for two years.

A turnover ratio of 50% is relatively high. We like to have more of a buy and hold strategy so if you have a buy and hold strategy then the turnover ratio may go down to as low as five or ten percent. So we recommend mutual funds with turnover ratio of over 50% or avoid it entirely less than five or ten percent turnover ratio is very good.


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