When you select them carefully, mutual funds can make a substantial contribution to the success of your investment portfolio. But there is always the risk that a mutual fund won't meet its
investment objective
or provide the return you're seeking. In a market downturn, for example, falling prices for a fund's
underlying investments
may produce a loss rather than a gain.
Changes in a fund's management after you've invested may also affect whether a fund achieves its objective. The fund company may, for one reason or another, replace a fund manager, or the manager may resign. This change may be significant since the manager controls the fund's investment portfolio. For example, a stock fund that has realized regular gains under one manager may become more
volatile
if the fund's new manager seeks more robust growth. And if a fund's investment style changes, it may no longer be aligned with your investment objectives in any case.
What this means is that however carefully you select mutual funds, you and the investment professionals you work with must monitor their performance regularly and be prepared to replace them if they don't measure up to your expectations.
Marc Lackritz