Review Your Mutual Funds

Like the majority of Americans, you probably own mutual funds. If so, you should take the time to review your holdings. As you do your review and analysis, here are some key points to consider.

* How have your funds performed? To get a handle on performance, compare your funds to other funds with similar objectives and investment style. Look at performance data for at least three to five years, and don’t put too much weight on current-year numbers. If your fund generally has performed in the top half of its peer group, that’s a good sign. But if your fund consistently has trailed the pack, consider switching to another fund.

The SEC estimates that income taxes cut more than 2.5% from the average stock fund's annual performance. To help investors make an apple-to-apple comparison among funds, new federal rules require mutual funds to report their "after-tax" returns. All funds must comply with this new rule by February 15, 2002. However, some funds have already started to report after-tax performance to investors. Keep this in mind as you review performance data.

* Have there been any changes in top management? Chances are you bought your fund at least partly because of its good performance record. But what if the manager responsible for that record has left the fund? There’s no need to panic, but it’s time to closely monitor fund performance. If your fund falls behind its peers for two years or more, consider selling.

* Have your funds changed their style? Every stock and bond mutual fund has an investment style. For example, one fund might target small company stocks, while another fund might invest in longer, high-quality bonds. Even if the fund manager hasn’t changed, your fund’s investment style may have shifted. If you don’t feel comfortable with the new style, consider another fund with a more compatible style.

* What’s happening inside your funds? Some funds perform well when they’re relatively small, but stumble as they grow large. Check your fund’s "net assets" to see whether there’s been a major change in its size. Some funds are managed efficiently, while other funds spend too much, ultimately reducing your investment return. Your fund’s "expense ratio" can reveal whether yours is a miser or a spendthrift.

* Is your portfolio up to date? Foreign stocks used to be exotic investments. Now, you may want to consider having at least a portion of your mutual fund portfolio in non-U.S. companies. You can buy a fund that invests in companies around the world, in certain regions, or in individual countries.

* Have you changed? Perhaps you recently got married or had a child. Or maybe your income has increased or decreased dramatically. After a major life event, or simply as you get older, you might want to fine-tune your mutual fund holdings. 

If we can be of assistance to you in your review, give us a call.

Related pages:   
        Beware of online stock scams
        Financial Planning For Women
        Financial resolutions for a new year & a new century
        Personal Financial Planning
        Review and Rebalance Your Investment Portfolio

© Copyright 2001 Raymond S. Kulzick. All rights reserved. 010501.