Investing in mutual funds is the first step toward financial freedom and developing your safety net for retirement. Besides choosing the best investment, you must track the performance of your mutual funds to know how you can grow your investments.
You may think tracking their performance is more complicated than keeping up with the stock market. Yet, you can track a mutual funds performance if you set up the right system.
You might think you can’t do it because you aren’t a seasoned investor. But, you shouldn’t worry about it. We’ve got you covered. Read on to learn how to track your mutual funds’ performance and keep growing your portfolio.
Mutual Fund Performance Basics: Where to Start
A mutual fund is a pool of securities that may include stocks and bonds. The issuer divides this fund into shares that are sold to investors. If you own a retirement account, you should have many mutual funds in your portfolio. Maybe you have been trying to grow your investment portfolio and bought some mutual funds.
You might’ve owned these shares for a while and don’t know if you should keep your mutual fund shares. The best way to figure this out is by analyzing your mutual fund performance data. While mutual funds can provide amazing earnings, some may fall through due to the market or fund management.
To analyze the performance of your mutual funds, you should check the mutual fund data on the fund’s website or even financial websites. You can find this information by searching your mutual fund ticker on those websites or a search engine. Ticker symbols for mutual funds are 3 to 4 letter acronyms that stand for the name of the fund.
Does Your Mutual Fund Beat Its Benchmark?
Once you obtain this information, you should take a look at the fund’s purpose. Every mutual fund has a benchmark the manager’s aim to outperform. How did your fund perform against its benchmark?
If your mutual fund’s performance beat the benchmark, it means that it’s doing very well. You should consider keeping the mutual fund in your portfolio. If it surpassed the benchmark by a wide margin, the fund manager has great stockpiling skills and a great asset to hold. When a fund doesn’t beat their benchmark by a large margin, you should analyze if it still fits your investment purpose and portfolio.
How Does Your Mutual Fund Perform in the Category?
While your mutual fund may have outperformed its benchmark, it doesn’t mean it’s the best in its category. You may think that comparing your mutual funds to any of the top players is the best way to track its performance. While you should compare your mutual fund, you must focus on comparing within their category. If you own global mutual funds, you should compare the mutual fund performance to the top global mutual funds, not USA mutual funds.
It’s recommended that you compare the mutual fund performance to the average returns in its category. Is it outperforming the average? When a mutual fund’s performance is above average, it’s considered a great asset to hold in most portfolios. Still, you should consider if your mutual fund fits your investment purpose.
Analyze the Mutual Fund’s Portfolio
Every mutual fund has its own portfolio of assets. Remember that it may include from commodities to bonds. A mutual fund’s holdings can tell you more about the management strategies and potential returns. If a mutual fund holds profitable assets, it improves your chances of earning great returns. Some examples of great assets some mutual funds hold are stocks in companies like Amazon, Johnson & Johnson, and Facebook. Keep in mind that you shouldn’t overanalyze your mutual fund’s portfolio. While the assets held influence your returns, the mutual fund management is the most important factor that determines a fund’s performance.
Take a Look at Their Ratios
You may have heard of mutual fund ratios such as standard deviation, alpha, Sharpe ratio, beta, among others. Experts analyze these ratios to get a better idea of the performance of the fund. Even if you aren’t a seasoned investor, you should consider taking a look at the most important ratios of your fund. You must compare the mutual fund performance ratio to the top players in its category. Keep in mind that you shouldn’t overanalyze them because you don’t want to get derailed due to short-term fluctuations.
While the mutual fund market may seem similar to the stock market. You shouldn’t track your mutual fund’s performance like your stocks. It’s recommended that you take a look at your fund’s performance every six months. You want to make sure that you don’t miss any potential in your investments. You should develop your own mutual fund performance tracking system that fits your investment objectives and helps you find out if your mutual fund still is a great fit for your portfolio.
