Investing a lot like playing the ponies

For many people, the only time of year they care at all about horse racing is when the Kentucky Derby rolls around.

Once racing's Triple Crown has ended, many investors forget about the ponies for another 12 months. But before the Preakness and Belmont run their courses, fund investors would be wise to recognize the similarities between picking a racehorse and selecting a fund.

The key factors in your choice of horse or fund — and how you structure your wager — are surprisingly close.

And while some people place bets on both funds and horses based on names, hunches and other guesswork, examining a fund's key components the way a savvy bettor observes a Thoroughbred improves your odds of finishing in the money.

As in horse racing, favorites don't always win in the fund world. Issues that have had a great track record sometimes come up lame or slow down with age.

But if you are considering a wager on a new fund for your portfolio, think like someone picking the ponies and weigh these factors:

• The length of the race and style of the horse. Some horses are bred for sprints, others for distance. The same goes for funds.

Volatile, concentrated funds using leverage or focused on sectors or in nations with developing economies often act like speed horses, jumping out to big early leads before faltering down the stretch.

Conversely, some funds don't go to the front of the pack until late in the race. They don't always look good in the early running, but they don't disappoint in the end.

Pick a fund that best matches your investment personality. Unlike a horse race, you can change funds as they round the turn and head for home, but studies show you are likely to be better off if you stick with your horses for as long as possible.

• The jockey. The fund's manager, like a jockey, has to be able to take advantage of opportunities. As an investor, you must decide whether you want a proven winner, an up-and-comer or an unknown, or if you want no real jockey influence at all (as in an index fund).

• The stable, trainer and blood lines. Just as the same trainers and stables seem to be represented in the big races every year, the same fund firms may consistently top the charts. A name-brand firm or a recognized style or culture may make you feel more certain about which choices can meet your expectations.

• Bets you are most comfortable with. You get smaller payouts betting on a horse to finish in the top three than picking it to win, but pursuing smaller, more consistent payouts may suit you more than betting all-or-nothing on a favorite.

Ultimately, your comfort level and risk tolerance play as big a role in the selection process as all the other factors, especially because fund investing (unlike horse racing) is a lifelong marathon rather than a short sprint.

Chuck Jaffe is senior columnist at MarketWatch. He can be reached at cjaffe@marketwatch.com or Box 70, Cohasset, MA 02025-0070.