Mutual Funds

 

Do you invest in mutual funds?  There is a website that started as a rating agency for mutual funds and now has ratings on much more and is a treasured resource for financial information.  Using www.morningstar.com, there are three basic steps that will aid in your use of mutual funds in your investment strategy.  If you do not want to use Morningstar Yahoo Finance is also a very useful and best of all free site.  Go to one of these sites or a similar site if you desire and type in the ticker symbol for your mutual fund to check out some information that is useful.  After you have pulled up the fund by the ticker symbol look for the year to date and one-year returns to see how your fund or potential fund is performing.   Please remember that in mutual funds as in any equity based asset past performance is in now way an indication of any future returns.  Also, as we have been in a strong bull market for the last five years, these funds are tending to have stellar returns over that period.

The next thing that you will want to do as a mutual fund owner is to compare the funds performance with that of other funds with similar asset bases.  An example of this would be a fund that invests in larger blue chip companies would be compared to similar funds or even an indexed S&P 500 fund.  In this review, you will want to examine what assets makeup the fund in order to get a good gage on what you may or may not want to compare the fund.  If you did own a large cap mutual fund, it would make little sense to compare that to a fund that invests in small caps or even say emerging markets.  This is a good place also to see how the fund did in 2008.  Compare it to the last five years to see how that particular fund will react in what could have been one of the worst years for stocks.

Now if your mutual fund did poorly in 2008 and over the last five years you may want to consider seriously selling and getting into a more profitable fund.  Depending on what assets makeup the fund, there could be a variety of reasons for a poor performance.  In the previous paragraph, I mentioned small caps and emerging markets.  Both of these sectors were hit hard in 2008 and in the case of these two the last five-year bull market to a large degree has been avoided in these sectors.  Another area that could cause a fund to have a period of poor performance when they should be experiencing gains is a change in the management of the fund.  If you are investing in an actively managed fund a change in key management positions could have disaterous effects on the funds performance.

While I would rather see people buy and invest in exchange traded funds if you are looking for actively managed funds a mutual fund is your best bet.  But when buying them do not just look at performance and remember to see what the fund charges in fees.  Actively managed funds will have higher fees than an indexed fund or a passively managed fund it will have to have a higher return to make up for the fees it charges.

If you have any questions or need any additional help in this area do not hesitate to contact me.