Besides understanding yourself and your financial capabilities, it is also important to evaluate the effectiveness of the fund manager and the track record of the fund itself. After all, the fund manager is the brains behind every investment the fund makes and you want to find somebody who is sensible, smart and consistent.
To do this, take a look at the long-term, or the 10 year performance record of the fund. This track record will provide the best indicator as to whether the manager is capable of steering the ship in both calm and troubled waters. Do not underestimate the importance of long term track record when evaluating funds because you will need that level of consistency to gauge the manager’s ability to handle the situation in all kinds of market conditions.
For example, ABC Fund has an annual 10 year consistent return of 15% and run by the same manager. XYZ Fund has an annual 2 year return of 18% and has changed its manager in its second year. A prudent choice would be to go for ABC Fund that has a much better consistency and experience. Of course, we know that past performance does not guarantee future success, but as it stands, it is the single best indicator there is to determine if a fund is worth buying.
You should also find out if the fund that you are interested in is run by a management team or a solo fund manager. In a management team, you know that decisions are made unanimously and the departure of one individual should not have a deep impact in the performance of the fund.
The solo fund manager, however, is a different case altogether. Successful solo fund manager are highly regarded in the finance industry and history has shown that there are managers which single handedly grow funds from zero to a billion dollar net worth. When these managers leave their post, it might fundamentally impact the profitability of the fund and you need to be on the lookout for such scenarios.
Ultimately, you need to always review the team or individual that is running your money behind the desk. If you discover any evidence that your best interests might be compromised, it might be time to re-evaluate the situation.