With over 6,000 mutual funds available, it may be tempting to pick funds from a popular star or index rating system. Savvy investors, however, balance multiple factors in their selection process. Ratings represent only the historical performance of funds and cannot predict the future. Performance consistency, management skill, and expense limitations are among the many factors that influence a fund's prospects. Each must be carefully evaluated to improve your chances of finding a fund to outperform the market.

Create a plan Define your financial goals. Are you saving for retirement? Putting money aside for a home? Funding a child's college education? Your answer will have significant implications on your choice of mutual funds. More time gives you flexibility to use an aggressive approach. Immediate needs call for safety and capital preservation. Take careful consideration of your tolerance for risk. If the market dips, at what point would you lose sleep? Is it a 5% drop? 10% drop? An asset allocation plan will balance your portfolio and maximize return for your level of acceptable risk.

Dismiss recent results Past performance is no indicator of future results. No truer words could ever be spoken and they are included in every mutual fund advertisement. But it's extremely difficult to ignore these numbers which the fund companies conveniently place in big bold letters - immediately above the fine print warning us. Nothing is more