The most important aspects to pay attention to in the prospectus are: Date of issuance, minimum investment, objective, record of performance, degree of risk and fees.
If you can't make it through the entire prospectus, get a hold of these books: Mutual Fund Sourcebook and The Handbook for No-Load Fund Investors. They will give you the important information that you need, including some that is missing from prospectuses (i.e. volatility, who the portfolio manager is, etc.).
Many investors are deceived by the tricky nature of yields. A stock's yield depends on both the price per share and the regular dividend that the stock issues. If you have a stock with a NAV of $25, and a dividend of $2, the yield is 8%. (2 divided by 25 = 0.08, see the two steps above) If the price goes down to $20, the yield would rise to 10%. (2 divided by 20 = 0.10) Even though your yield went up percentage wise, the overall stock price is down 20%.
But you must understand that yields are a highly personal thing. Yields published in a newspaper are irrelevant to you if you did not invest on the date that the yield is based on. If you are not invested in anything and are simply comparing different funds' yields, then this information can be useful. Otherwise, you must refer to the date and amount of your investment for yield to have any meaning.
This technique will prevent a major disaster from taking place, but at the same time, it will limit the profits that you reap, as well. If the prices had gone up during the entire year, dollar-cost averaging would have proved detrimental. At the same time, if prices had plummeted the whole year, the average cost of what you paid would have been lower than it could have been.
But you do not need to be an expert, sophisticated investor to spot the obvious signs. When the market is reaching all-time highs, it is usually time to lighten up on your investments. When the market is unusually low, it is an opportune time to buy. This is a mild version of market timing. Market timing is knowing precisely when to advance holdings in certain areas at certain times, and when to retreat, as well. Many academicians, however, will tell you that market timing is really not that helpful. To be a highly successful investor and a market timer, you need to be right 70 to 80% of the time. As a market timer, you need to be right twice: when to retreat your stake in an investment and when to get back in.
Dollar-Cost Averaging
Dollar-cost averaging is an important concept that investors should learn. When you utilize this technique, you are diversifying the prices at which you buy an investment over a period of time. As a result, you end up paying lower than average prices. Thus, you have "averaged" the "dollar-cost" at which purchased a fund. Market Timing
As anyone who has any experience in investing can tell you, the market is very dynamic and in a constant state of flux. Knowing the nuances of the market takes years of experience, but keeping a close eye on major trends will be helpful to any investor.