Knowledge is Power

When buying bank CDs, insurance or mutual funds, bumps in the road are less likely to derail an educated investor than one without information. If you’re serious about your investments, even if you only own a 401(k), understand everything you can about them, including:

Performance in good times and bad

If you are a relatively new investor, you might not understand the concept of stock prices falling. But a look at history will show you that equities have down periods — with some lasting for years. That’s why most investments include the disclaimer “past performance cannot predict future results.” Plus, investments perform differently in varied circumstances. Look to see how your equity investments perform when the market is both strong and weak.

Performance over various timeframes

Another way to examine an investment’s past performance is to explore returns over one, three, five and 10 years. The shorter the timeframe, the less true the performance may be. Check out the year before steep market declines and you might find investments that performed extremely well when the going was good but tanked during bad times and never fully recovered. Time is the great indicator.

Expenses

If you own shares of mutual funds,* you should be aware of their expense ratios. All mutual funds have so-called 12b-1 expenses, which are used to pay administrative, management and marketing fees. Common sense says the higher the fees, the more they will affect performance.

Also check to make sure your funds stay true to their stated philosophy. Monitor management changes to see if they affect performance. And work with a registered investment representative who understands your investment objectives.

* You should consider the fund’s investment objectives, charges, expenses and risks carefully before you invest. The fund’s prospectus, which can be obtained from your financial representative, contains this and other information about the fund. Read the prospectus carefully before you invest or send money. Shares, when redeemed, may be worth more or less than their original cost.