According to the Keown book, mutual funds are a great way to invest. Once you have the minimum amount saved–about $3,000 for most Vanguard mutual funds–it's time to start investing. What are a few factors to keep in mind?

Question

What will be an ideal response?

Answer 1

Answer: Goals. Set up your investment plan to meet your goals.
Put your plan on autopilot. The easiest way to save is to never see the money in the first place. Just about every mutual fund allows you to have money automatically pulled from your checking account each month and invested in the mutual fund of your choice. Paying yourself first, as it's called, always makes sense.
Taxes. As you invest, keep your tax situation in mind, because mutual funds pass along taxable income from their investments in the form of dividends and capital gains–and even if your money remains invested in the mutual funds, there might be taxes to pay.
Taxes when you move money. When you move money from one fund to another, even within the same fund family, the IRS looks at the movement as a sale and a purchase and assesses taxes on any gain from the sale.
The losers. While it's hard to pick winners, it's much easier to pick losers. If a fund has done poorly in the past, chances are it will do poorly in the future. Take the time to check out the past performance of a fund you are interested in.
Costs, costs, costs. Keep your costs down, as lower-cost mutual funds tend to do better than higher-cost funds. Read the fine print. Watch for commissions, maintenance, and other fees that eat away at your money!