AboutWarren Boroson Expertise Author of "Keys to Investing in Mutual Funds" (Barrons), "Ultimate Mutual Fund Guide" (Probus), "How to Pick Stocks Like Warren Buffett" (JKLasser), and "The Reverse Mortgage Advantage" (McGraw-Hill). Former financial columnist for Gannett News Service.
Experience Author of 20 books; winner of 1996 Personal Finance award from Investment Company Institute and Washington University. Formerly on staffs of Money and Sylvia Porter's Magazine. Had a radio program (on WEVD) about mutual funds and a newsletter, FundDigest.
Expert: Warren Boroson Date: 9/9/2007 Subject: Mutual Fund Performance
Question I am very new to investing online. How can I determine if my mutual fund is performing adequately? Should I pay attention to YTD Return, Yield or should I look for something else?
Answer Dear Frank:
First, determine exactly what kind of fund you own. A stock fund? A fixed-income fund? A balanced/hybrid fund? A value fund? A growth fund? A foreign fund?
You have to compare apples with apples.
The Vanguard Group runs a lot of index funds, and you can use these funds to compare your fund's performance. (An index fund is a mirror of an investment market.)
For example, if yours is a large-cap blend fund, the Vanguard 500 Index Fund would be appropriate. Vanguard also has small-cap and mid-cap index funds, value and growth index funds, foreign index funds and so forth.
Forget about yield! That's mainly for fixed-income funds. And a high yield is often -- not always -- a sign that something is wrong.
Yes, consider the year-to-date total return. Better yet, the fund's performance since you bought it compared with the performance of your benchmark (the appropriate index fund).
If your fund is badly underperforming its index, be concerned. But give your fund time. Perhaps a year, perhaps two.
The first thing to do if your fund is doing poorly, compared with its index, is to call the fund and see if you can speak to someone there.
Also read Morningstar Mutual Funds in a library; that publication has regular reports on the major mutual funds, and you may be able to get up-to-date advice on whether to continue to own the fund.
If your fund has a good long-term record, give it some extra time.
And if yours is a value fund, recognize that value funds in particular go through bad times -- because they buy out-of-favor stocks and must wait patiently until other investors see the wisdom of their ways and drive the price up.
A tip: If you have a sizable loss on your fund, and it's in a taxable account, sell it for the tax loss -- and, if you like the industry, buy something similar but not "substantially identical." That way, you can eat your cake (have a tax write-off) and still be there if the fund's industry rebounds. (If you buy something substantially identical within 30 days, you don't get a tax deduction.)
