Show #276 Airing December 5, 2004
There are lots of mutual funds. Some are good, some are bad. The problem is: How do you decide? Today's guest is here to tell us that we can find the answer in the stars. Jim Lineweaver is founder of Lineweaver Financial Group and a "star" financial advisor.
Question: Let’s get right into a report. There are some sections I know you wanted to highlight. First is the Morningstar Risk-Adjusted Rating. What important information can we glean from here?
Answer: The Morningstar Rating for funds, commonly called the star rating, is a measure of a fund’s risk-adjusted return, relative to funds in its category. Funds are rated from one to five stars, with the best performers receiving five.
The star rating is best used as an initial screen to identify funds worthy of further research, those that have performed well on a risk-adjusted basis relative to their peers. It’s a qualitative measure, and doesn’t imply endorsement by an analyst.
Funds are rated within their respective categories, so not all 5-star funds are interchangeable. Rather than selecting funds based solely on their ratings, investors should decide on an overall portfolio strategy and then seek the best funds for each portion of their portfolio.
Question: Next we’ll look at Fees and Expenses.
Answer: This section shows sales charges. Do you have a front-end load (an initial sales charge) or a deferred load (a back-end sales charge) and at what percentage?
It also shows the amount of fund expenses, like management fees (that pay the advisor) and 12b-1 fees (that pay for distribution and marketing costs).
Question: The third section—Operations. What’s that all about?
Answer: Information on where to write and call to get investment information from the fund. Also listed is the fund’s minimum initial purchase and break down of the fund’s expenses into their components. A fund’s total cost based on a $10,000 investment is projected. And then the fund’s total cost is put in context relative to its category.
Question: What does the composition tell you?
Answer: It shows a breakdown of the fund’s portfolio holdings, as of the date listed into general investment classes, such as cash, U.S. Stocks, non U.S. stocks, bonds, and others.
The composition breakdown allows investors to glean information about the portfolio’s investment strategy. In knowing a fund’s composition, an investor can be sure that s/he is getting the type of fund they’re looking for. If one is looking for an aggressive growth fund, for example, the fund’s composition shouldn’t reveal a 25% bond position.
Question: Finally, the Performance section.
Answer: The quarterly returns show the performance investors have seen over each calendar quarter in the past five years. This section is a good spot to quickly test your risk tolerance. For example, find the largest quarterly loss. If it makes you uneasy, you should probably look for less-volatile funds.
Don'tjust wish upon a star for good investments. Check out the stars, in Morningstar. My thanks to our financial star, Jim Lineweaver. If you'd like a free mutual fund analysis, give him a call.
Jim Lineweaver is a registered representative of and offers securities through Walnut Street Securities, Inc. (WSS) Member NASD/SIPC.
Branch Office:
9050 Sweet Valley Drive,
Valley View, OH 44125
216-520-1711
WSS does not offer tax or legal advice.
Lineweaver Financial Group is not a subsidiary or affiliate of WSS.
Material discussed is for information purposes only and should not be the basis for any investment decisions.
