As a serious wealth builder, mutual funds are an important part of your overall wealth portfolio, and it is important to understand how to make your first investment in them. When you have your first $10,000 available to invest in a mutual fund, and you find yourself asking "How to invest $10,000 in mutual funds" - take that as a cue that you need to begin understanding the make up of overall wealth portfolio. We say "wealth portfolio" and not just "investment portfolio" because the former includes any businesses you own, all income sources (work, dividends, inheritance trust etc.) in addition to actual investments in private ventures, stocks, bonds and so forth.

After carefully looking at your overall wealth portfolio, divide your assets into an income camp and a capital appreciation camp. Thus for example, your job, your spouse's job, your CDs, I-Bonds, dividends from stocks, real-estate rentals and free cash flow from a business will all go into the income camp. Ownership of stocks for growth, flipping real-estate, investments in private ventures that don't pay income, and so on belong to the capital appreciation camp. If you find your wealth portfolio tipping excessively in one direction or the other, you must choose your mutual fund such that it helps restore some balance to this equation. While it is hugely tempting to seek out funds that will grow the most or the fastest, maintaining your overall portfolio balance is of far greater significance to your wealth building strategy. A balanced wealth portfolio will weather the storms of a bear market, recessions, job loss or other events far better than a portfolio where all your wealth is completely tied up in a stock or a fund that locks up your money for years to come.

Thus having chosen a pathway of either income or capital appreciation, you must now choose the funds with the best returns, history and management. For income, we suggest looking at several closed end funds that specialize in debt management strategies (mortgages, private loans etc.) or other advanced strategies. Alternatively, look at Municipal bond funds for their tax advantages. We always prefer a higher-yield strategy with safety of capital - and not let taxes dictate your investment decisions. On the capital appreciation side of the equation, choose either small-cap value stock funds, or large-cap value stock funds, or international value stock funds. As you can see, our theme is on value stock funds. Value investing ensures safety of capital, a large margin of safety and has generally outperformed growth strategies over ten to twenty year periods. Good examples of such funds are Legg Mason Value Trust and Dodge & Cox Stock Fund. If you love indices, go with Russell Small-Cap Value Indices - small cap value are even more attractive over a 3-5 period because they do well in both bull and bear markets.

We are not entirely against growth funds, and you will find good growth funds and managers - but make sure you understand their investment style, and ensure that it is not of the type that chases the next hot thing. Instead, the management team must remain within their circle of competence and be patient, even if the next hot thing is making their results look bad. This ensures a lower churn, and the fund will outperform the market in a 5-10 year period.

Following the above guidelines will help you ensure overall wealth portfolio balance, and find a good home for your first $10,000 investment in mutual funds.