Straight Talk Tip: In a diversified stock fund, we don't like any expense ratio that is over 1%. For an index stock fund, we recommend you look for 0.3% or less, and no more than 0.5% - 0.6% for a bond fund.

The prospectus will also tell you about the fund's management (who are the advisers, and what is their background and track record?), the services provided (does the fund offer an automatic investment plan or IRA accounts?), and tax consequences (what is the likely tax impact on an investor in your tax bracket?).

3. Go beyond the prospectus and dig into the annual report. Another important document to look at before you buy a mutual fund is the annual report. When you request any prospectus, ask for a copy of the annual report as well. The annual report tells you what the portfolio manager has invested in during the year. If you compare 2-3 years' worth of annual reports, you will get a very good idea of the manager's primary long-term strategies and objectives.

Straight Talk Tip: Take a close look at the stocks and/or bonds that are listed. If the entire annual report lists companies you've never heard of, or companies whose business practices you dislike, this fund won't suit your needs.

The prospectus should also include information on minimum bond ratings for the bonds in which it invests. You may need to do some digging to find out the ratings, but it's easy on the web. Just go to www.bonds-online.com/Bond_Ratings_Definitions.php. If most of the bonds listed in the portfolio have a Standard & Poor's rating of BB or below, don't buy that fund.

You can read our primer on the ins and outs of different types of funds here at Dolans.com now - just click here.

Related Links:

• How to Read Stock Quotes 101
• Dolans 10 Simple Rules of Investing
• Your Investing Mantra

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