BOSTON -- At such a confusing time for the securities markets, mutual-fund investors understandably have questions. Here are some answers: Joe in Santa Barbara, Calif. writes: When Bernie Madoff pleaded guilty for his Ponzi scheme, he said that he had never invested the money that people gave him to put in his fund. I have been giving my adviser my money for years to invest in funds. How do I know it's really there? Answer: Assuming you invest in mutual funds -- and not hedge funds or private investment pools -- checking up on your cash is pretty easy. Look at who you've been writing the checks to; if it's the fund firm, the brokerage firm or the servicing firm that handles the fund's transactions, you're all set. If you made out checks directly to the adviser or to the planner's firm, that's a bad sign, because that's one way that a rogue adviser gains access to your cash. The law requires that funds have a custodian to keep the securities, cash and other investments owned by the fund. The rules also require a fund to have a bond against embezzlement and theft, covering anyone who might have access to the fund's assets. Just as important, however, is to see where the information you get about your account is coming from. You want a recognized mutual fund manager -- where you can verify prices independently and can contact the firm to verify your account. (Or to make sure that the fund company works with the advisory firm in the case of an "omnibus account," where the fund does not have the end customer's name but instead shows that it deals with XYZ Advisers.) In the case of hedge funds, private investment pools and the like, beware of statements that come directly from your adviser, and not from the third-party purported to be handling the funds. Make the right moves Reg in San Diego: You have written about studies showing that most investors don't even do as well as the mutual fund itself, because they add more money or sell shares at just the wrong time. I do try to invest regularly, but how can I tell if the moves I am making are helping me, or at least not hurting me? Answer: What you are looking to calculate here is your "dollar-weighted return," which basically shows whether your results are better or worse than your fund's. Grab a pencil, a calculator and your most recent statement showing all activity in a fund over the period you want to check (such as the past 12 months, the latest calendar year, or the past three years). From there, these three steps will give you a rough dollar-weighted calculation. Step 1: Subtract your account's balance at the start of the period from your current balance. Cut the result in half, even if it's negative, and then add back the money from that beginning balance. This is your "average monthly balance." Step 2: Add up your starting balance and any additional investments or distribution reinvestments made during the period. Subtract this total from your current balance. If you made any withdrawals from the fund, add them back now. The result is your "total gain" or if negative, "total loss" for the period. Step 3: Divide your total gain (or loss) by the average monthly balance and multiply the result by 100. In rough terms -- it's not perfect -- this will be your dollar-weighted return. Compare it to the fund over the same time period to see if you did better, worse or the same as the fund itself. If you do not make additional investments, your return would equal that of the fund. And if you make small additional investments -- say $50 or $100 per month to an account with $20,000 or more -- your investor return will likely be close to the fund's numbers with the possible exception of times with extreme volatility. What's more, some fund firms keep this data for you, so check your statements or call the fund before sharpening your pencil. Buying stocks on a budget Sandy in Baton Rouge, La.: I don't have a lot of money, and I don't know when the worst is over, but I do believe that the stock market will come back. I want to take advantage of cheap stocks. How can I buy funds if I don't have much money? Answer: Brand-name funds raised their minimum initial investments years ago, and while you can search a database -- like the one from the Mutual Fund Education Alliance (mfea.com) -- for options, you'll find that low-minimum issues have high expense ratios to make up the carrying costs of many tiny accounts. Look instead at the fund companies that interest you, and call to see if they will ignore the minimum deposit requirement if you make monthly automatic deposits. Many firms waive high initial hurdles -- or drop the minimum completely - for ongoing monthly deposits. At that point, you can invest in funds for as little as $50 per month. Copyright © 2009 MarketWatch, Inc.  | 
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