A mutual fund takes a lot of pressure off an investor. You buy into a pool of stocks, bonds or other holdings overseen by a professional manager, and there’s no need for you to keep an eye on individual assets — the manager does that. However, even a hands-off investment should be monitored to make sure it continues to serve your financial goals.
Here’s how you can monitor your mutual fund to make sure its performance stacks up.
Choosing a Fund
Most people first encounter mutual funds through an employer’s retirement plan, such as a 401(k). The plan typically offers a variety of funds from which to choose. Some are passive, mimicking indexes such as the S&P 500. Others are active, with managers continually trying to beat their benchmark. There are stock funds (riskier), bond funds (safer) and balanced funds with a mix of holdings. Many 401(k) record-keepers, or the companies acting as trustee, offer dynamic websites with tons of information about your investments.
When to Check In
Unless you are trying to make a living as a day trader, checking your mutual fund’s performance on a semi-annual or annual basis is sufficient and will alert you to any important changes in a fund that might warrant your attention. Additionally, a shift in financial goals — you need your fund to provide steady income or you have a chunk of cash to invest — should trigger a reevaluation of investments.
Utilize Online Tools
The most direct way to check your mutual fund’s performance is to access your brokerage or investment company account online. In many account platforms you can click on the mutual fund ticker symbol and a plethora of user-friendly data will appear. Check out the categories of "performance" and "research." You can see one-year, five-year, and 10-year performance returns compared to benchmarks, as well as how risky the fund is on a scale of 1 to 5. These tools will also indicate how much your fund is charging in annual expenses and what its top holdings are (if you have more than one fund, this will help prevent you from duplicating your investments).
Check the Shareholder Report
If you are unsatisfied with how your fund has been performing for the last couple of years (a smaller window might only indicate short-term fluctuations), peruse the quarterly and annual shareholder reports. These contain information such as whether the fund has a new manager. The portfolio holdings in the Audited Financial Statement will reveal if the investment strategy changed and the fund is now invested in different sectors than those you initially bought into. Substantive change in an under-performing fund may be your cue to sell.