Understanding Your Mutual Funds Statement

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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) – Mutual fund companies send out annual statements the end of January. In addition, you should have received your 4th quarter report for 2013. Unless you have opted out you will get a paper copy.

Many investors do not open these statements. They just toss them in a pile or file them. Find them and take the time to review them.

Those statements are going to become the worksheet for analyzing your portfolio.

  • How much is in your retirement plans? College savings? Emergency fund?
  • What’s your net worth once you add it all up?
  • What are you invested in? Mutual funds? Stocks? Bonds? Cash? Real Estate?
  • What’s your asset allocation?
  • Is your asset allocation compatible with your goals?

Often times there is a pie chart on the statement, which is a picture of what you have in your portfolio broken down into categories and percentages. How and where your money is invested; this is your asset allocation! If it’s not on the statement get on their website and they will have it there for you to review.

You want to be sure you are diversified, meaning your portfolio is not lopsided. You want a portfolio that will allow you to sleep at night. One that is appropriate for you. If you are 28 and single and you told me your retirement plan was invested 100% in stock mutual funds I would agree that would be okay for you.

But if you are 55 and plan to retire in five years and have the same portfolio, that is too risky. A retiree with the same portfolio is much too much risk. You need to modify the risk by adding more bonds and cash to the portfolio.

It will take years for a portfolio to recover from a down market and the 28-year-old has the time, the 55-year-old maybe, and the retiree is screwed. So take the time to find the asset allocation that will work for you.

One more thing:

Financial History Lesson -

1973 and 1974 Bear markets were ugly.

If you had invested $1,000,000 in the S&P 500 Index as of January 1, 1973, you would have had the following outcomes:

3 months later

$951,200

6 months later

$896,310

9 months later

$939,510

1 year later

$853,450

1 year, 9 months later

$573,780

Not a very good result to be sure, and many investors then (and likely now) might have withdrawn their capital in order to preserve what was left.  However, if you had taken out the balance of $573,780 and invested it in a “safe” CD earning 5%, you would have obtained the following results:

6 months later

$588,130

1 year later

$602,470

2 years later

$632,590

5 years later

$732,300

10 years later

$934,620

Ten years later, you’re just about back where you started.  But, what if you had left the balance of $573,780 in the S&P 500 as of October 1, 1974?  You would have ended up with the following outcomes:

6 months later

$771,570

1 year later

$792,620

2 years later

$1,034,040

5 years later

$1,247,680

10 years later

$2,444,340

We can’t count on history to repeat itself, but these numbers would suggest that a dose of patience might be a good prescription for the ills that are affecting both Wall Street and Main Street.

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