You are going to read a list of headings and a text about how to select a fund. Choose the most suitable heading from the list A–F for each numbered paragraph (41–45). The first and last paragraphs of the text are not numbered. There is one extra heading which you do not need to use. Mark your answers on ANSWER SHEET 1. (10 points)
[A] Watching related expenses and making wise choice
[B] Paying attention to details
[C] Weighing your financial goals and expectations first
[D] Maintaining realistic expectations
[E] Narrowing the search
[F] Not too special
Eating better. Exercising. Investing. There are a lot of things you know should be doing. The problem is that getting started always seems to be the hardest part. For many investors, mutual funds are a good way to go, but trying to sort through the number of available choices – now more than 10,000 – makes this important task appear overwhelming. Let’s look at some ways to cut that number down to a reasonable size, as well as other factors to consider when selecting your first fund。
41.
Before you begin examining potential investments, it’s important to take some time to assess your own goals and risk tolerance. If you start with a clear objective in mind, as well as an understanding as to how you might react if your investment loses money, you’ll be less likely to purchase a fund that doesn’t fit your needs. And that’s what often leads to disappointment. It is important to look for funds that are appropriate for both your goals and your investment temperament。
42.
One way to begin your search for a good fund is to use the Morningstar star rating. The rating is a useful tool for narrowing the field to funds that have done a good job of balancing return and risk in the past. To assign ratings, Morningstar uses a formula that compares a fund’s risk-adjusted historical performance with that of other funds within four rating groups – domestic stock funds, international stock funds, taxable bond funds, and municipal bond funds。
43.
Funds that invest solely in a single market sectors, called specialty funds, often have impressive returns and may be great additions to a diversified portfolio. However, the success of such funds depends largely on the fortunes of a particular market sector. Hence, specialty funds probably aren’t the best way to start. For your first fund, look for a diversified stock fund that has exposure to different types of stocks。
44.
There’s no free lunch in fund investing: in addition to the sales fees that some fund companies charge, fund investors must also pay management fees and trading costs. Unfortunately, you don’t necessarily get what you pay for – no one has ever shown that more expensive funds provide greater returns. Look for funds with reasonable costs. The expense ratio, which expresses annual costs as a percentage amount, is probably the best number to use when comparing mutual fund costs。
45.
Whatever the market does, try to take it in stride. You’re in for the long haul, so don’t worry about the market’s day-to-day gyrations. Relax and resist the temptation to monitor your first investment daily. Check in on your mutual funds once a month, and give your portfolio a thorough exam every 6 to 12 months. And consider adding to your fund each month. An automatic investment plan makes it a relatively painless process。
Finally, remember that the ultimate measure of your success as an investor depends not on your owning the best-performing mutual fund. Only one fund will be the top performer over the next decade, and there’s no way to predict which one it will be. Meeting your own financial goals should ultimately be the yardstick by which you measure your investment success。
