The bar graphs all look impressive this year. Many of those advertisements for mutual funds like to show how well they're doing by including a bar graph. On it, this year's gains are represented by a black bar shooting straight up. Any second now, they seem to say, that bar will go right off the top of the page.
With the gains the stock market has made this year, just about every equity fund can publish an impressive chart like this. For the person trying to select an equity fund, however, finding a real top performer means looking at long-term performance.
The last truly bad bear market, for example, occurred in 1973-74. More recently, a lot of equity funds lost money in the 1981-82 period of high interest rates. But there were a few funds that managed respectable gains in both of these periods.
Long-term performance, then, is one standard for selecting a mutual fund. Another comes from you: What are your financial goals and what risks are you willing to take to achieve those goals?
Although there are more than 500 different equity funds to choose from, it is fairly easy to eliminate large groups of them by examining your goals and tolerance for risk.
''There are various categories of funds for various categories of incomes,'' summarizes Sheldon Jacobs, editor of the No-Load Fund Investor, a quarterly newsletter. ''People should pick a fund with objectives that match their own.''
A young recently married person, for instance, may want to accumulate money for a down payment on a house in several years or to send children to college. Such an investor might choose a growth fund that favors newer companies and other firms with a potential for fast growth in the future. Or, the more venturesome might opt for an aggressive growth fund in which the returns can be even higher - but so is the risk.