Choosing a Mutual Fund Broker Part II
Jack R. Landry has worked in financial services for the last 12 years and written hundreds of articles about investing. He recommends (http://www.WisdomTradingSystems.com) for managed futures.
Selecting the appropriate handler of your money for a mutual fund can be a very challenging task. After doing personal background research on a variety of companies, choose a few of those companies to speak to the manager with.
This is the best person that you can talk to about the handling of a new mutual fund because he or she is likely the person who understands the workings of the company the best. If they do not understand what is going on then you will want to look elsewhere for investing your mutual fund.
When you are sure you have as much of a thorough knowledge as you can gain on the history of a company and you like what you see, call the manager and ask for an interview. Prepare some questions beforehand so you can make sure that you get answers to all of your questions.
Evaluate the answers of the manager closely. Note if there are any inconsistencies in his statements and explanations.
Inconsistencies indicate that the manager does not understand what is going on and that your mutual fund will not be used as wisely as it should be. If this is the case, find another company and talk to the manager there.
While you are at the office be sure to look around and evaluate the professionalism, the atmosphere, and organization of the office.
Be sure to ask the manager about the margin-to-equity (ME) ratio. The margin money is the money that you need to stay in the futures market.
The margin to equity ratio is the margin money in cash divided by the total account equity that is needed to keep a portfolio of positions. This number is typically displayed as a percentage.
This number should not rise over fifty percent on a speculative strategy. If it does, the manager is usually taking a large risk.
The ideal maximum for this number is thirty percent. Even with this restriction, below thirty percent does not mean that your mutual fund investment is risk free.
Investments are never risk free. If the interview goes well and you are comfortable with the strategy, call the company later to ask more questions about the non-trading parts of the company.
At this point be sure to ask for a copy of the disaster recovery plan. This plan will tell you what will happen if the worst occurs with your investment.
Consider asking whether the company has a backup generator should the power go out. A backup generator will allow your mutual fund and manager to stay in the market game, even without general power.
Ask whether their company is on a different power grid than your home. If the power goes out and your home and the company are on the same grid, you may be out of the game for a while.
Along with this question find out if the company has a second office their can trade from. If they do have an extra building this will provide added security for your investment by reassuring you that this company will be able to stay in the game no matter what.
Find out how long it will take the manager to travel from his home to the mutual funds office. This time can make all the difference in relation to your investment being successful or failing.
Be sure to ask who will take command of the office should something happen to the manager. You may want to talk to this person to make sure that they also fill your expectations in someone who will be handling your investment.
If you are looking to invest for an institution rather than simply an individual investment you will want to go much deeper into this research. However, if you are simply investing for personal purposes, you can be satisfied with this much research.
Of course, the more research you can do the better. If you have additional questions, but not enough time to make a visit in person or to keep calling, try writing them down and sending them to the manager.
Most managers will be happy to fill this out for you. Doing research, or completing due diligence, is very common for new investors so some companies may even have a questionnaire already filled out.
Completing due diligence is a necessary and worthwhile step in mutual fund investing.
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