Mutual Funds: Benchmarks

BOSTON (WBZ-AM) -- A benchmark is a standard used for comparison. You will want to learn how to compare your mutual fund to a benchmark so you can tell how well your fund is doing in order to evaluate your portfolio.

If you own a small company stock mutual fund or ETF you should be comparing it to other small cap funds and not the S&P 500 index, which is comprised of large US Stocks. You want to use the Russell 2000 to evaluate a small cap fund.

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 “Business & Finance” section. Check the Markets Digest.

Here you can find the Dow Jones Industrial Average along with all of the other major US 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 homepage and find a box entitled Mutual Funds, click on the down arrow and within that box look for the “Lipper Indexes”. Here you’ll find a list of the Lipper Fund Indexes updated through the previous market-trading day with year-to-date percentage changes. 

Compare your investments to the various indexes and see how you are doing. 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 the index make a note to keep an eye on it over the next several quarters.

Here again Morningstar is a great resource for evaluating your mutual fund portfolio. Much of the information you can get for free. If you are doing a lot of trading, you may want to buy a subscription. Many libraries have a subscription. 

One more thing:  Here are some of the common benchmarks. Check 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
•Morgan Stanley Emerging Markets for developing country companies
•Lehman Bros. Long Term Bond Index for bonds with 20 years to maturity
•Lehman Bros. Intermediate Govt/Corp Index for 5-10 year maturity bonds
•Lehman Bros. Bond Buyer Municipal Index for long term municipal bonds

You can hear Dee Lee’s expert financial advice on WBZ NewsRadio 1030 each weekday at 1:55 p.m. and 3:55 p.m.

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