Considerations on How to Build Your Strategy

Just as the bond course teaches "bond ladders," mutual fund investing relies on Asset Allocation. This is the process of deciding what percentage of your money goes into Stock Funds vs. Bond Funds.

Step 1: Determine Your Time Horizon

 If you need the money in 2 years (e.g., for a house down payment), you may want to consider leaning heavily toward Money Market or Short-term Bond Funds. If you are saving for retirement in 30 years, you can afford the "bumps" of an Equity Fund.

Step 2: Systematic Investing (SIP) 

Often considered as one of the best strategies for beginners is a Systematic Investment Plan (SIP) or "Dollar Cost Averaging." Instead of trying to "time the market" and buy when prices are low, you invest a fixed amount (e.g., $200) every month regardless of the price.

• When prices are high, your $200 buys fewer units.
• When prices are low, your $200 buys more units. Over time, this often results in a lower average cost per share.

Step 3: Taxes and Diversification

Remember that selling mutual fund shares for a profit triggers a "Capital Gains" tax. Also, some funds pay out "Capital Gains Distributions" at the end of the year, which are taxable even if you didn't sell your shares. Always check if you are investing through a taxable brokerage account or a tax-advantaged account like an IRA.

We suggest that you always consult with a tax advisor to asset you in meeting your individual tax-related needs.