Commandment 1. Thou shalt not buy anything you don't understand. If you can't explain a mutual fund's strategy to an eighth-grader, you probably don't fully grasp how the manager plans to handle the money you plan to give him. Without that knowledge, you could be in for an unpleasant surprise.

Take the PBHG Growth Fund, which in the early 1990s seemed to be a permanent fixture atop the rankings tables. Between 1991 and 1996, the fund twice had years with gains of more than 50 percent. But the fund achieved this record by investing in companies with earnings momentum - a constant high rate of growth. When the market loses steam, momentum funds tend to drop like rocks. In fact, whenever PBHG Growth wasn't at the top of the charts, it had a history of being among the worst-performing funds. So from 1996 to 1998, when the Standard & Poor's 500 posted huge gains, PBHG Growth looked like a stinker (most notably in 1997 when it lost 3.35 percent).

Not surprisingly, investors lured to the fund after it put up big numbers bailed out when things headed south. Had they understood how and why the fund had succeeded in the first place, they might have never invested in PBHG Growth to begin with, or they might have had the patience to wait for momentum to return (which it did in 1999, when PBHG Growth was up over 90 percent).

Commandment 2. Thou shalt not worship false management idols. The fund business creates new "gurus" every day, but true genius only shows itself over time. That's why the industry is littered with "one-hit wonders," managers who had one great year and drew lots of attention and money, but never duplicated that success.

In the early 1990s, Heiko Thieme of the American Heritage Fund was a media darling: a regular on the financial talk shows, where everyone raved about his fund's market-beating numbers (including a 97-percent gain in 1991 and a 41-percent increase in 1993). By 1995, however, the press had nicknamed Thieme "Psycho Heiko" for his fund's manic performance. His fund lost money in five of the last six years of the decade, with losses exceeding 30 percent in four of those years. And although Thieme's fund has had periodic bounces - it was up 75 percent in 1997 - it still has one of the sorriest long-term records of any, have lost 54 percent of its value during the 1990s despite its big numbers at the start of what became the greatest decade in market history.

Avoid the guru du jour in favor of managers with long-term records of steady, above-average results. Such managers tend to have an understandable style (see the first commandment), which is typically less volatile and easier to stomach. Thieme, by contrast, went into private and illiquid stocks that few investors really understood, and which contributed to his fund's ups and downs.

Commandment 3. Thou shalt not think short-term. Your goals are probably long-term, so judge your funds on that basis. Just because you can see how your funds do every day doesn't mean you should feel compelled to do something. The average holding period for a mutual fund today is about three years, despite mountains of information touting the benefits of long-term investing and the dangers of moving in and out of funds.

Whenever you buy a fund, record the factors that persuaded you to make the purchase. If the fund ever slows enough for you to consider bailing out, go back and look at that list and see what has changed. If your sentiments, needs and goals, and the fund's objectives are the same, chances are good that the only thing that has changed is the market. Making moves based entirely on current market noise is market timing, not long-term investing.

So don't penalize a fund - or yourself and your money - for short-term moves in the market.

Commandment 4. Remember they asset allocation and keep it holy. Occasionally, you'll be tempted to throw everything into a hot sector. Don't do it. It's better to develop an investment plan and stick to it. Sure, today's hot stuff could improve your short-term results. But getting greedy now will result in a portfolio that could look pretty ugly when the market decides to favor a new direction.

Your asset allocation - the way you spread your money between various types of investments - should reflect your outlook for the market. Asset allocation is where you factor in protection from downturns by making sure you are diversified across asset classes (including bond funds). If you believe you're too heavily weighted in one category, you can throttle back by directing any new investment dollars to other funds. Or, you can cull some of your winnings so that your money isn't too concentrated in any one arena.

Commandment 5. Honor thy investment objectives. Don't be so blinded by maximizing returns that you lose sight of your goals. The object of investing is not just to wind up with the most money; it's to have enough money so that you can pay for the things you consider precious - a home, college education, retirement, and the like - when you need them.

The funds that give you the greatest potential rewards also have the greatest potential risks. Consider what will happen if those high-flying choices you make not only don't deliver the performance they had in the past, but suffer losses commensurate in size with the gains they had in the past.

As you near your financial goals, be more conservative by increasing the fixed-income portion of your investment portfolio to lock in some of your gains, and by cutting back on the high-risk stock issues in favor or more-stable, less-volatile offerings. As your goals near, you no longer have the time to wait out a downturn, so becoming more conservative will ensure that the nest egg you worked so hard to create will still be there when it's needed.

Commandment 6. Thou shalt not fall in love with thy funds. We're talking mutual funds here, not marriage partners. Give the relationship time to work and grow. Enjoy the good times and be watchful of the bad. But if a fund no longer does the job you got it for or if it falters and shows no signs of recovery, prepare yourself to move on.

You should pick up some telltale warning signs. Among them: below-average performance relative to its peer funds for an extended period of time, say 18 months; management changes that could spark a new investment style; a shift in strategies or objectives by the fund; increases in expenses; and a dramatic increase in the size of the fund. Even managers of a fund that's done a great job in the past and is consequently growing in popularity can have a problem quickly finding high-quality investments for all the new cash that's pouring in.