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With the stock market in disarray (though recovering, it seems), many people are turning to mutual funds as an investment. These offer automatic diversity, as well as take away the pitfalls associated with picking individual stocks. However, as many are finding out the hard way, even mutual funds can fall, and some can result in losses. Your brain can’t take a vacation just because you are looking for a fund; you still need to pay attention and choose wisely.

Instead of looking at recent performance, Kiplinger offers 5 things to look at when vetting your fund investment:

1. Expense ratio: This is the number of fees you pay. Look for a fund with low fees, and you will keep more of your returns. Additionally, low-fee funds actually outpace their higher-cost counterparts over the long haul (10 years or more). This is one reason that I like index funds so much.
2. Stewardship: This reflects how fund managers see their shareholders. Morningstar actually rates stewardship, and you should be very wary of funds who score a D or an F. You want funds that will protect shareholders before maximizing profits for managers.
3. Risk: Avoid risky funds that are more susceptible to market volatility. However, you still have to realize that during times like these, even the less risky funds are going to take a beating.
4. Manager stake: You want a fund that the managers are investing in. Check to make sure that your managers are vested in the fund’s performance as well. The Kiplinger article recommends that at least one of your managers should have at least $500,000 invested. This rule does not apply to index funds, however, since there are no managers. Money market funds are exempt as well.
5. Management quality: You want someone who employs sound strategies when making investment decisions. Look into backgrounds to make sure that you are getting competent managers. (Again, this rule is inapplicable with index funds.)

In the end, there is so much more that is more important than performance over the last one to five years. What’s more important is picking a fund that will provide you solid returns over the long haul.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

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Earlier today, stocks were higher on the news that June home sales were higher than expected. Indeed, the news provided a bit of a jolt for Wall Street, since the indication was that the housing market might have bottomed. There are hopes that perhaps rising home prices and rising sales could be a sign that things are on the verge of turning around. That good news, however, was drowned out by earnings news from various companies.

Earnings is still a focus for investors on Wall Street. And earnings are still rather lackluster. Even though there has been some positive earnings news, those surprises have not been as prolific as one might hope. There is some hope that stocks might turn around as Euoprean stocks did. After falling close to the end of the day, European markets managed to pull out of it and end higher. However, it would take some effort on the part of bulls to make it happen.

Treasury auctions in focus for Wall Street

In a break from recent history, it appears as though Wall Street will be taking interest in this weeks Treasury auctions. Investors will be looking for signs of inflation and also for signs that economic recovery is underway. Here is what MarketWatch says about Wall Street’s interest in this week’s Treasury Auctions:

“The one thing that makes this all plausible is that last week, the Fed Chairman [Ben Bernanke] in his testimony to Congress stated that while the recovery may be underway, it will not likely include inflation,” said Kevin Giddis, head of fixed income trading and research, Morgan Keegan.

“This was the best news the markets could hope for and it is likely the reason for the rally in stocks,” said Giddis of last week’s trade, which on Friday had the Dow industrials closing at their highest level since early November.

All in all, it should be an eventful and interesting week.

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If you’ve been paying attention, you know that the stock market has been rather volatile. For those with a very long time frame, periods of volatility are not a great cause for concern. However, for others with shorter trading time frames, volatility makes a big difference when it comes time to enter and exit trades. Understanding stock market volatility and what it means is important. Noble Trading offers this overview of some important volatility indicators on the stock market:

• Stock Beta: Beta is the comparison of a stock volatility to market volatility. The greater the beta the higher the volatility. Beta value mainly favors long-term traders and investors (mainly CAPM investors) as it does not tell anything about short-term stock volatility.
• Bollinger bands: Bollinger bands and other standard deviation indicators mainly favor swing to intermediate term traders. They can also be used for a variety of purposes such as generating signals, finding supports and resistances, and finding trends.
• ATR indicator: Average True Range indicator measures only the volatility and is used by many traders to find entry points and stop-loss levels. ATR% and time series of ATR% can offer better results.
• Chaikin Oscillator: Chaikin accumulation distribution oscillator is an indicator which uses closing prices to measure market volatility. Though lesser known, it is an effective indicator to analyze money flow, confirm trends and predict trend changes.
• Moving averages: There are a number of indicators based on moving average, which respond differently to market volatility with reference to the smoothing factor they use. MA indicators are extensively used by all types of traders trading all kinds of instruments.

Indicators can be a way to get a feel of how sentiment is moving, and how you can discover trends in the stock market that allow you to take advantage of trends.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.