• Diversify. If you're interested in investing, you might as well tattoo that word to the insides of your eyelids. It means, essentially, spreading around your nest eggs, so that if a certain company goes up in flames, they won't all turn to omelettes. Mutual funds are a shortcut to diversification: a single investment that will deposit your money in a variety of securities. While they're often safer than individual stocks, mutual funds can fail, so it's important to choose carefully.
  • For a basic overview of mutual funds, and to clarify some of the crucial lingo in this article, first read How do Mutual Funds Work.

• There are thousands of mutual funds to choose from. Because mutual funds are diversified by nature, picking at random might be a little safer than picking a stock at random, but not by much. The following sources can help you narrow down the field. When you spot something that interests you, write down the fund name and ticker symbol.

1. CNNMoney.com publishes an annual list of the the Money 70: The best mutual funds you can buy.
2. Yahoo! Finance's Mutual Fund Top Performers lists the most profitable index funds of the current market.
3. MarketWatch.com offers a weekly guide to mutual funds, which includes both analyses of individual funds and broad strategies for investing in mutual funds.
4. For a one-time charge of $30, The Motley Fool offers a guide to choosing mutual funds.
5. The Wall Street Journal Online publishes a monthly analysis of mutual funds performance that's well worth investigating.
6. MoneyControl.com lists the current price per share (i.e. Net Asset Value) or each fund on the market, side by side, on its Latest Mutual Fund NAV's page.

• MarketWatch.com's Mutual Fund Comparison research tool is one of the most user-friendly ways to choose the right fund. That said, it presents information that can be hard to grasp for a new investor. Following these steps—and not getting discouraged by the finance-lingo—will give you a basic understanding of the funds on your list.

1. Go to the Mutual Fund Tool page.
2. In the field labeled Tickers enter the ticker symbols of all of the funds you've noted, separated by spaces.
3. Under the heading Compare, select the Returns button and click Show Funds. Figures will appear under the following headings, indicating the percentage of gain or loss within several periods of time.
   • 1 Wk, 13 Wk and 1 Yr represent returns for the past week, the past 13 weeks and the past year, respectively.
   • YTD (Year to Date) represents the return rate since the beginning of the year.
   • 3 Yr (Annualized), 5 Yr (Annualized) and 10 Yr (Annualized): These headings refer to the average annual rate of return for the past three years, five years and ten years, respectively.
4. Now select the button Risk and click Show Funds.
   • A few inscrutable figures will appear on your screen, purporting to measure the risk involved in investing in each fund. For an excellent overview of these stats, see Investopedia's Five Stats That Showcase Risk.
   • Otherwise, note the following factoids about the numbers that appear under each of the following headings:
     • Alpha: For this figure, a higher number indicates a higher return on an investment.
     • Beta: This figure measures the volatility of the fund compared to that of the market as a whole. A figure lower than "1.0" means that the investment will be less volatile than the market while a number higher than 1.0 indicates that it will be more volatile than the market.
     • RSquared: On MarketWatch, this figure is expressed as a decimal. The higher it is, the closer it mirrors the market index under which the fund's investments are measured: or in other words, the more it reflects the overall performance of the market. A low number, on the other hand, means that the fund diverges from the market: either performing significantly better or significantly worse.
     • St. Dev: Standard deviation is yet another measure of the fund's volatility, but in this case, the higher the number, the more unpredictable its performance is likely to be.
5. Select the button labeled Fees and click Show Funds.
   • This is pretty straightforward: the higher each of these fees is, the less of your investment you'll see in returns. Add all these percentages together to see just how much of your money will go to the broker, fund manager, or the fund itself.
   • If it is a load fund, the percentage of the load will be listed under either or both the headings Front Load and Defferred Load.
   • Total Expense Ratio measures the internal expenses of the mutual fund, as distinct from the outright membership fee of the load. This means that if you invest $10,000 in a mutual fund with a 1% investment ratio, $100 is going to the company itself, rather than to your returns.
6. Select Holdings and click Show Funds.
   • This feature will show the top investment holdings that make up the fund, according to the percentage of the fund invested in each. If you want to be thorough, consider researching each investment that's listed.
7. In order to find the current price per share (Net Asset Value) of each fund, click the individual ticker symbols of each.
   • An overview of the fund will appear.
   • The current NAV is posted in the upper left-hand corner of the page.

• The prospectus is a sort of official overview of the fund, outlining its history, strategy, goals, risks and management staff. You may request a hard copy of the prospectus from the fund itself, or read it on the website of the US Securities and Exchange Commission.

1. If you want to review the prospectus online, use the online resources provided by the SEC.
   1. First read Tips for Reading a Mutual Fund Prospectus.
      • The prospectus can appear to be a complex document, but the SEC's guide can help you crack it.
   2. Then go to the SEC's company search, enter the fund's name or ticker symbol and click Find Companies.
   3. A page will come up listing all of the company's recent filings with the SEC.
   4. In the right upper corner, locate and click the Prospectuses button.
   5. A list of documents with inscrutable titles will appear.
   6. Next to the first document on the list (which is the most up-to-date), click on html.
   7. Another list of documents will appear; click on the first one.
   8. The title page of the prospectus should open in your browser window.
   9. Scroll down to read the prospectus.
2. If you would prefer a hard copy of the fund's prospectus (and to not have to navigate the SEC's enigmatic website), go to MarketWatch.
   1. Enter the ticker symbol in the field at the top of the MarketWatch homepage and click Go.
   2. Scroll down to Fund Company Information.
      • The company's phone number, most likely a toll-free 800 number, should be listed under this heading.
   3. Call the company and request to be mailed a prospectus.

• One particularly crucial figure to look up in the prospectus is the fund's turnover rate. This measures the rate at which the fund buys and sells assets. Funds with higher turnover rates pass along a heavier burden of capital gains taxes than those with lower rates.

1. Search the prospectus' table of contents for either Tax Information or Fees and Expenses.
2. Go to the specified page and look for the heading Turnover, or Turnover rate.
   • Funds with a very low turnover rate will be more tax efficient than those with high rates.
3. 10% is a good benchmark for what qualifies as "very low." These tend to be index funds.
4. A reasonably low rate for a regular, managed fund is 50% or lower.
5. Keep in mind that the turnover rate is only one figure to consider. A high achieving fund could offset taxes with high dividends.
6. MorningStar.com offers this tip for minimizing the personal cost of high-turnover funds: "Place tax-inefficient funds in tax-deferred accounts, such as IRAs or 401(k)s."

• Once you've done your homework, you may be ready to jump into one of the big investor pools known as mutual funds. But where do you go? You can't get them in vending machines—at least not yet—but mutual funds are available from a wide variety of sources.

1. Full Service Brokerages
   • If you go with a full service brokerage like Merrill Lynch or Smith Barney, you'll get the personal attention of the broker and face-to-face guidance about mutual funds. Unfortunately, full service brokers are often paid a high load as commission for steering you toward a mutual fund, so it's certainly possible that their advice is not unbiased.
   • For a list of full-service brokerages, see Yahoo! Directory.
2. Discount Brokerages
   • Discount brokerages like E*Trade and Scottrade give you the basic tools you need to invest, but most of your transactions will be made online and at your own initiative. Discount brokerages will help you to save money and give you access to a wide variety of no-load and index funds, but without the personal attention of a full service broker, or the full savings that's possible by investing directly with a mutual fund company.
   • For a list of discount brokerages, complete with rates and reviews, see SmartMoney's Discount Broker Rankings.
3. Fund companies
   • Your best bet, in terms of expenses, may be to buy shares in a mutual fund directly from the company that administers it. These companies can be contacted by phone, mail, or through their websites.
   • Vanguard, whose founder John C. Bogle essentially invented the index fund in in 1976, offers an array of no-load mutual funds directly to the investor.
   • For direct links to the websites of other mutual fund companies, see the Mutual Funds Investment Center's list of fund companies.
4. Banks
   • Certain banks, including Wells Fargo and Bank of America, sell load funds. Aside from the convenience of being able to manage your mutual fund in the same place as your banking, there may be little benefit to buying from a bank.
   • Like full-service brokers, banks receive commissions, but do not offer the same level of service.

The US Security and Exchange Commission can help you to address questions or concerns you may have about mutual funds. The SEC's Office of Investor Education and Assistance can be reached at (800)SEC-0330.

• Mutual funds aren't exactly a high stakes game of roulette, but neither are they all created equal. If you choose wisely—and remember to watch those fees—it will pay off in the long run. You might even end up the wealthiest octogenarian on your block!