Step 1
Go to www.morningstar.com (Or look up funds via Kiplinger.com’s free Fund Finder tool), type in a fund’s name or symbol, and click on “performance.” Look for year-to-date or one-year returns. Thanks to the bull market, many stock funds have been doing well lately. “That makes it hard to draw conclusions,” says Christine Benz, Morningstar’s director of personal finance. So examine the fund’s five- and ten-year returns, too.
Tool: Kiplinger's Mutual Fund Finder
Step 2
Get context for your fund’s performance by comparing it with average returns for its group and with an appropriate benchmark, such as the Russell 2000 index for small-company stock funds. Also look at how a fund did in 2008 (an awful year for stocks), and compare that with how it has performed over the past five years. A fund with a defensive strategy would likely have done better than most in 2008 but would have lagged as stocks rebounded. For aggressive funds, the opposite would be true.
Step 3
If your fund did badly in both periods, start digging: Check annual shareholder reports to see if the fund changed its strategy. If it did, consider whether the fund still meets your needs. If it didn’t, put the fund on your watch list, or give it the boot. Think of the big picture as well. “Look at all of your holdings, and make sure your portfolio is well diversified,” Benz says. “You don’t want everything moving in the same direction.”
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For more great fund resources, check out The Kiplinger 25, our favorite no-load mutual funds, as well as our Mutual Fund Finder tool, which can help you better tailor your portfolio.
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