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A Checklist for Fund Investors

Questions to ask when deciding whether to invest in a fund.

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Last weekend The Wall Street Journal columnist Jason Zweig wrote an excellent piece about the importance of using checklists as a way to avoid behavioral errors when investing. As he points out, investors can be wildly inconsistent in the parameters they use when evaluating potential investments. This leaves them prone to making decisions based on emotion rather than a systematic process. Employing a checklist ensures that investors consistently address the issues that really matter, and it helps them avoid repeating past mistakes.

The column suggests potential questions to ask when investing in individual equities, but it doesn't have specific suggestions for mutual fund investors. So, what would a fund checklist look like? These questions should go beyond what one might include in a simple screen. Let's assume that investors--or at least regular visitors to this website--know to generally stick to funds with low costs, proven management teams, and strong risk-adjusted performance. But such data points are just the beginning.

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Kevin McDevitt has a position in the following securities mentioned above: NEWFX, SEQUX. Find out about Morningstar’s editorial policies.