Steps to Take Before Picking a Mutual Fund

The most important issue in developing a portfolio is establishing and identifying your objectives. While everyone's needs and goals are different, it is important to sit down and write out what you currently have, what you will need for day to day living expenses, and what future long term strategic goals you want to achieve. One of the biggest mistakes investors make is spending all their time selecting individual investments before they have thier financial house in order.

Steps to take before investing:

Set up an Emergency Fund -- establish a fund that will protect against unexpected situations. You never know what tomorrow will bring. Unemployment, property losses and health care costs not covered by insurance should be considered. Set up a liquid reserve fund that covers six months of living expenses in a high yield money market fund. Without a safety net, you run the risk of either creating debt or selling investments that have high transaction costs such as selling a home as well as paying taxes.

Get Adequate Insurance Coverage -- an unexpected catastrophe can easily wipe out your life savings and it must be taken care of before you need it. Not having proper coverage is a risk that is generally not worth taking. Consider reviewing your policies covering health, life, disability, property and casualty, and automobile with a qualified insurance agent.

For insurance information click on the blue insurance tab at the top of the page and select the coverage you are interested in.  A local advisor is always available to help (during reasonable hours, of course).

Pay Off Debt -- Paying off your high interest rate loan may be your best return on your money with little risk.  Investments that consistently return the same after-tax rates as loans or credit card debt is pretty hard to do.  Pay off your highest rate loans first.  If you must, use savings to pay down your debt but make sure you leave your emergency fund intact.

For credit and debt information, click on the top red planning tab at the top of the pageand then select the Credit tab.

Calculate your Net Worth -- it's difficult to manage and allocate your resources without knowing what you are worth. By determining your net worth on paper , you may determine that you have all your eggs in one basket. Net worth = Financial Assets - Financial Liabilities. Assets are considered to be anything that can be converted into cash or cash itself. Liabilities include any kind of debt such as mortgages, auto loan and credit card debt.

Evaluate Current Spending Patterns -- try to determine where your money is going by making out a list of expenses and tracking them.  A painful process but worth the effort.  You'll amaze yourself how quickly five bucks here and five bucks there can add up.  Once you have this list you'll quickly be able to determine what areas you can improve upon.  Obviously the goal is to have your income exceed your expenses so cash is readily available to invest.

Set your Financial Goals -- while everyone's goals will vary the most common goals to take into consideration are centered around major life events such as marriage, children, purchasing a home, college education, retirement and taking care of elderly parents. Each goal should have a time frame attached to it. Different goals may dictate different investments. Periodically evaluate your progress. Set a time frame to review your goal such as semi-annually and stick to it.