What are the components of a well-rounded mutual fund portfolio? Overall, it needs to be appropriate for your age, risk tolerance, and financial profile. Having said that, there is no simple answer. If you are working with an investment advisor, you must do your homework; if you are a do-it yourself investor, you must do your homework.

In working with an advisor, you may feel that he/she knows what they are doing. Never assume that. Remember this is your money and they are getting paid to work with you. Do not be intimidated with thoughts of "I know so little about this kind of thing''. In the investment industry, the caveat is very much, buyer beware! While it is all very well to place your trust in a financial advisor, face-to-face, on the phone, over the Internet, you should always, always, look at every transaction with a jaundiced eye.

Questions Here are some questions you must ask your advisor: How long have you worked in the investment industry? What is your experience? Where else have you worked? Have you ever taken a securities exam? Where and when? Besides last year, have you worked during any other bear markets, 1994, 1991, and 1987? Do you work with a supervisor? What is his/her experience? How do you know what funds to pick for me? Are these the only ones your firm sells? Will I recognise the fund names? Or are these funds set up and managed by your company? How much experience does your company have in this sort of thing? Have you ever set up a portfolio before? Do I get the same one as everyone else? What questions are you going to ask me? Who pays you? How are you paid? When? Does this fund pay any trailer fees? Is the company giving you an incentive to sell this fund? What kind of advice am I entitled to for this commission? Can I call you on an ongoing basis anytime I want to discuss this fund? Products There are approximately 38,000 mutual funds in the offshore world, and another 11,000 or so in the United States. I won't differentiate right now between open-end, closed-end, unit trusts and will skirt exchange-traded funds (because they are new and different again). For now, let's assume we are working with open-ended mutual funds.

With so many to choose from, where do you start? Well, what about some well known brands; they attract a lot of attention. Eaton Vance, Fidelity, Invesco, MFS, Putnam, Jardine Fleming, Janus, Vanguard, etc. Two separate funds (think of them as separated by a Chinese wall) but managed by the same investment manager. This bit of information helps because United States finance websites provide far more fund information than offshore does; if you can't find your offshore fund, you can at least pick up some statistics on its fraternal twin onshore. They are not exactly the same, but they are close.

Track records There are lots of funds tracking services on the web for US mutual funds, Morningstar, YahooFinance, MSN Money, Smart Money, Money.com, etc. These services have become extremely sophisticated and very detailed, partly because of US Securities and Exchange disclosure rules dogging them, but mostly because of fierce competition for your dollars. The offshore world (with the lion's share of the funds) is nowhere as easy to research; the two major tracking services that do provide some comparisons, Micropal and Lipper, give bare minimums compared to their US counterparts.

You can also garner much information on a fund's particular website, but generally, these do not compare the fund's attributes with its peers. And there can be a certain amount of hype, or dancing around the "real rate of return'' so that investors won't figure out exactly what is going on. All within the regulations, mind you.

Homework You can use them to do your homework, after you are given sales materials (but before your purchase a fund) by your financial advisor. A caution here, some investment firms may use institutional money managers, private placements, or have their own products that are not publicly listed. It becomes extremely difficult to make comparisons in these cases and your homework list just got a lot longer. For example, even though both Bank of Bermuda and Bank of NT Butterfield have their own offshore proprietary funds and they are listed, you can go directly to Micropal and presto, there they are.

Next week, in Mutual fund lesson number three, we list questions you should ask about mutual funds and take a look at the statistics for one special mutual fund. It shall remain unnamed, as this is an educational column, not a recommendation for investment products.