4 Signs You Picked the Right Mutual Fund

February 5, 2013 Investing
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I don’t think any one can design a perfect investment portfolio. I know that my plan for retirement is not perfect, and that I might not have the right investments to get me there. What I do know is that I’m probably “good enough” in that I am saving enough and invested in some of the best funds I could be invested in.

I wanted to write today about some signs that indicate you picked the right mutual fund. Picking a fund isn’t a rocket science, but if your fund meets these criteria you probably did a great job:

1. You can explain what it owns

I find that too few people know what their mutual funds hold in their portfolios. At a minimum you should know the basic asset allocation – how much of the fund is made up of stocks or bonds. You should also know the style of the fund – is it a growth fund, or a value fund?

2. It has a reasonable fee

Sites like Morningstar will compare the fees you pay on your fund to similar funds in its category. Always look for funds that are in the lowest fee segment of their category. Fees and charges weigh on returns in the long run.

3. There’s a track record

I think you should always buy funds with a little bit of history, especially if they have an active manager. While you cannot know how a fund will perform in the future based only on the past, you can get an idea for how the manager manages the fund in different environments. Some managers completely missed the 2008 crisis while others skillfully navigated it and avoided major losses. Pick a manager who aligns with your goals.

4. It’s available in a 401k or IRA

If you can’t buy a mutual fund in a 401k or IRA, don’t! Unless you have completely maxed out, you should make use of the tax benefits that you get from investing in a 401k or IRA. These tax benefits are huge, and if you do not use them, then you are missing out on hundreds of thousands of dollars in tax savings over your lifetime.

Being Smart about Investing

Investing is not something you have to do perfectly to benefit from it, but if you do it well enough, you’ll enjoy a very happy retirement without worrying about running out of money. Use these signs you picked the right mutual fund the next time you shop for a new investment.

How Much Apple Stock Do You Own?

January 24, 2013 Investing
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You have probably heard about Apple in the news. The company became the largest company in the world by a measure known as market capitalization, which is the price of all the stock in the company. Apple currently has a market capitalization of $420 billion, but it was over $500 billion for quite some time when shares were $700 each. Now shares are trading for $450.

Apple’s big value means that a lot of people probably own a piece of it. If you own an index fund like those that invest in the S&P 500 index, then you own some Apple.

How much Apple do you own? It depends on what you’re invested in!

I own the Vanguard Total Stock Market Index (VTI) in my retirement account, and it holds 4% of its assets in Apple.

If you invest in the S&P 500 index funds then you also own a lot of Apple (AAPL). Right now the S&P 500 index funds from SPDR has 3.91% of its assets in the stock.

That doesn’t seem like a lot. Both of these funds have limits on how much they can put into one stock. That limit is 5% of all money invested in the fund. However, if we look at other funds that do not have limits, then the amount invested in Apple really goes up. The other extreme is the Technology Select Sector SPDR (XLK) which has a crazy 17.5% of its portfolio in a single company – Apple!

While I don’t pick stocks on my own, I do like to know about the funds I invest in. You can see how much you have invested in Apple by going to MorningStar.com which has the data for all funds and ETFs.

What funds do you own? Are you closer to 4% Apple than 17%?

My Favorite Financial Publications

January 16, 2013 Books / Investing / Personal Finance
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I have read or currently read many different personal finance magazines. What I have found is that they are very different from magazine to magazine in their content and their perspective.

Here are some short reviews of each magazine I have read:

  1. Money Magazine – This one is my top choice for people who are interested in personal finance. I like their frequent “profiles” where they break down a family’s financial plan and talk about how the family could allocate their investments. Also, they have a column where they correct an issue that a reader has. For example, a huge banking fee from a bank. Consumer activism at its finest!

  2. Business Week – If you like business you will love Business Week. A new edition comes out every week, and despite being a weekly news source, I find that its articles are very timely. Unfortunately, this one can be a budget buster relative to other magazines. I think a full year is $50-60.

  3. Smart Money – This was a great read until it was closed down earlier this year. Smart Money was a lot like Money magazine, but I like that they also did comparisons between consumer products. I found that interesting. It covered everything from student loans to buying cars – pretty cool.

  4. Kiplinger – I never really liked this one, but can’t say why. Some articles and lists looked more like sales lists and advertisements than actual articles.

  5. AAII Journal – The American Association of Individual Investors has a great publication known as the AAII journal. I joined AAII and paid a small fee, and now receive 10 issues a year. I think this is the most thoughtful of all magazines, but it is definitely tilted toward active investing rather than passive investing.

I’m thinking about adding a few more to my list. Right now, I do not subscribe to a daily magazine – I get my news from the internet – but maybe the Wall Street Journal would be good for me? Also, I hear a lot of good things about Barron’s (a weekly from Wall Street Journal’s parent company), which might be good since I’m not exactly sure I have the time to get the full value from a daily newspaper. I’m pretty sure I still have a subscription that I need to forward from my old apartment address…

What are some of your favorite personal finance magazines?

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