Mutual funds are a great way to get started in investing and should be part of your portfolio if they aren’t already. In today’s economy, diversification is extremely important and mutual funds are an excellent way to doing so. Depending on the fund you choose, your investment entitles you to a portion of the earnings. Here are 3 essential tips to help you make smart investment choices.

1. Do your research ahead of time

Don’t be so quick to jump on a mutual fund that everyone tells you will be a huge success in the future. Always do your research ahead of time and thoroughly look into the fund including how well the fund performed in the past, who the board of advisors are and what assets they invest in. Be sure to invest into a company with a track record of proven success.

2. Make use of rating systems

Be sure to use resources such as Morningstar and the Lipper Leader Fund Ratings as they provide detailed analysis of literally hundreds of mutual funds. These companies use a simple 5 star rating system that use criteria such as total return and past performance to rate individual funds. These resources should only be used as a guide and should not be taken at face value.

3. Considering investing in stable industries

There’s always going to be those mutual funds that invest into hot trends and while investors may enjoy healthy returns, it’s likely to be only temporary. Invest into stable industries such as utility and oil companies as those services are always in demand regardless of the economy. Most industries such as the electronics and real estate are heavily dependent on the state of the economy.

Before investing in mutual funds, be sure to keep these factors in mind. As tempting as it can be to jump onto the band wagon of popular funds, always do your research ahead of time, make use of rating systems and consider investing into stable industries.