When you are checking a fund's performance, look at the tables that show how it has fared over the last one, three, five and ten years. Look for steady performers that have consistently been among the top five funds in their category. And make sure that the performance of the funds you have selected is the performance under the fund's current management team.

2. Read the all-important prospectus. When you buy shares in a mutual fund, by law the fund must give you a prospectus. That's all well and good, but getting the prospectus after you've invested in the fund is backwards. You need to read it before you put your first dollar into the fund. Make sure you get one by calling the fund's toll-free number and asking it be mailed to you, or the quickest way to find one is on the fund family's own web site.

We know; prospectuses look complicated and scary. The type is small, they are filled with legal mumbo-jumbo, and they seem to have a lot of numbers in them. In reality – just as with almost any other type of financial document – once you've read a couple, you will see that they follow a standard format and can actually be scanned pretty quickly for the information that you need.

Think of the prospectus as a trail of clues that will tell you what's really going on in those plush offices where the fund's managers make their decisions.

There are two things you absolutely must look at in a prospectus:

• Investment Objective: You'll find the investment objective listed in its own section of the prospectus. The investment objective explains the goal of the fund. As we've talked about, the three most common goals are growth, income, and growth with income. If you're looking for more income from your investments and the fund's objective is growth, you're in the wrong ballpark. The objective also tells you how the fund manager proposes to meet that goal ("aggressively", "moderately" or "with as little risk as possible").


• The Expense Ratio: The expense ratio is listed in the fund's fee table, which shows you all the fees and expenses the fund subtracts from the fund's performance (and your investment) each year. The lower the expense ratio the better, because more profits will go to you!

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