Got that Morningstar sheet ready that we made a few days ago? We’re about to use it…..
Before we pick new investments for the portfolio, we have to examine your current investments to see what is right on and what needs to go. Why do a bunch of choosing new investments if the current ones are working?
Open up Morningstar.com.
In the quote box at the top, type the name of your fund until you find it. Click on the investment.
On our sheet in the “Investment” column, write the ticker symbol of the investment. If it’s a mutual fund, it’ll be a five letter code next to the investment name. As an example, the Fidelity Contrafund has a code of FCNTX. In Morningstar, it’s listed like this:
Fidelity® Contrafund® FCNTX
The code gives you a quick way to find your investment. In the 201 course we’ll cover how to figure out your fee structure based on the symbol, and how to quickly use the symbol to know what type of investment you’re examining.
Next, write the category. To do this, look at the large “Growth of $10k” chart. At the top right corner, just above the chart, is the category.
Contrafund? Here it is:
Now we need to find the 10 year return. Below the Growth of $10k chart and “Morningstar’s Take” chart is The headline “Performance.” Find the 10-year line.
|YTD||1 Mo||1 Yr||3 Yr||*||5 Yr||*||10 Yr||*|
|Growth of 10,000||10,556||10,119||11,351||17,093||21,142||25,787|
|+/- S&P 500 TR USD||2.20||0.87||1.66||-1.15||-0.22||1.92|
|% Rank in Cat||—||—||—||—||—||—|
|# of Funds in Cat||1,699||1,720||1,664||1,502||1,289||891|
For Contrafund, you’ll see that the return is 9.94% over 10 years. I also want to note whether that beats the category or not. If it does, I’ll place a (Y) next to the return. If not, I’ll place an (N) next to the return.
In this case, I’d write 9.94% (Y) in the “10 Year Return” area.
Head back up toward the top of the screen for the Fee Ranking. To find it, look again at the 10 Year Return Box and the top right hand side. Just above the style box and category will be fees.
Here is what it looks like for Contrafund:
I don’t need to list the actual fee (you can if you want, but this may confuse you later)….only “low.”
Why might the actual expense percentage confuse you? Some investors mix up apples and oranges when looking at fees. As an example, a fee under 1% is cheap for an international fund. However, a large growth fund charging more than 1% would have a fairly high fee. If you list the actual expenses, you’ll begin to think some really good funds are too expensive. Let Morningstar do that work for you. When they give you the fee level, they’re comparing your fund against all the others ONLY IN THE CATEGORY. We love that.
Last, let’s look at the star ranking. Why do we do that last? It’s because most people look at it first and never evaluate the fund.
What do we already know about Contrafund? It has a 9.94% return, that beats the average in the category and it has low fees. I’ll bet it’s highly ranked….but I know it’s highly ranked because it has low fees and exceptional returns.
Some funds are ranked low because they underperform their peer group, but they have really low fees AND take less risk. We want to keep those funds around if we’re hoping to take less risk, don’t we?
Sure enough, Contrafund is a four-star fund (the second top ranking….five is best).
The last line, Keep, is up to you.
First, remember yesterday’s return objective? If the fund doesn’t meet your return objectives, it should be sold, even if it’s a great fund. There are many other reasons to sell a fund. But if it garners the return you want and the fees are low…or even if the fees are high but the fund’s been rocking, why would you switch?
That’s up to you. Write Y or N on each fund for now. We’ll balance them next time.
That’s your homework. List all of your current funds in your current accounts on your Morningstar sheet.