Understanding Mutual Fund Benchmarks

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420x316-grad-lee Dee Lee
Dee Lee is a Certified Financial Planner who received a diploma in...
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BOSTON (CBS) – You will want to learn how to compare your mutual fund to a standard so you can tell how well it’s doing compared to other similar mutual funds. You need to be able to compare your results with a standard in order to evaluate your portfolio. A benchmark is a standard used for comparison.

If you own an international fund you should be comparing it to other international mutual funds and not the S&P 500 index, which is comprised of mostly U.S. stocks.

So now you need to be able to find a list of the benchmarks somewhere. You can start with your mutual fund company. Most will compare their funds results with a benchmark.

Our Boston newspapers have some information but a good resource would be the Wall Street Journal. Turn to the “Money & Investing” section. Check the Markets Lineup.

Here you can find the Dow Jones Industrial Average along with all of the other major U.S. stock market indexes including the S&P 500, the Russell 2000, Wilshire 5000 and the NASDAQ. Also there you will find the international stock indexes.

The paper edition of the WSJ is good, but I like their website better. Use their Market Data Center.

 

Check out the home page and find a box entitled Mutual Funds and within that box look for the “Lipper Indexes”. Here you’ll find a list of 21 of the Lipper Fund Indexes through the previous market-trading day with year-to-date percentage changes.

Some of the index categories you’ll find there are:

  • Large-Cap Growth
  • Large-Cap Value
  • Multi-Cap growth
  • Mid Cap growth
  • Mid-Cap Value
  • Small-Cap Growth
  • Small-Cap Value
  • International
  • Balanced
  • Equity Income

So now that you know where to find the data you can then compare your investments to the various indexes and see how you did. Just remember this is just a quick gauge of your investments’ performance, not a complete checkup. It just tells you how you did for a period of time. If something looks out of line, make sure you are using the correct benchmark.

If your mutual fund is not within a couple of points of its index make a note to keep an eye on it over the next several quarters.

In doing some research I came across a new newsletter and website the Mutual Fund Observer for research on your funds. Interesting site and worth the time to read about the funds listed.

One more thing:  Here are some of the common benchmarks. Again look to the Wall Street Journal to find the daily numbers:

  • Dow Jones Industrial Averages
  • Standard & Poor’s 500 for large size US companies
  • Russell Mid-cap index for medium size US companies
  • Russell 2000 for small size US companies
  • Europe, Australia & Far East (EAFE) for international companies
  • Lehman Bros. Intermediate Govt/Corp Index for 5-10 year maturity bonds
  • Lehman Bros. Bond Buyer Municipal Index for long term municipal bonds

·         Morgan Stanley Emerging Markets for developing country companies

·         Lehman Bros. Long Term Bond Index for bonds with 20 years to maturity

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