[This is a guest post from LaTisha at Financial Success for Young Adults where she writes about investing, budgeting and planning for retirement. To see more from her visit www.FSYAonline.com]
Using Morningstar for Mutual Fund Research
What is Morningstar.com
Morningstar.com is a great resource for first time investors and experienced investors. There is a wealth of knowledge that is absolutely free! I have been using Morningstar ever since I worked with the Student Managed Investment Fund in college. We had to use the site to research stocks, download annual reports and gather general company information.
It is a reputable source and I use it often when I evaluate my own trades. I even wrote a tutorial on Morningstar that provides a step by step breakdown on how to get the most out of the service.
Morningstar on Mutual Funds
I was contacted recently by a friend that mentioned investing in mutual funds, rather than buying a share of stock, for retirement. She asked my opinion on a few mutual funds that she was considering purchasing. After I warned that I am not a financial advisor with no qualifications whatsoever to give investing advice, I suggested she check out Morningstar.
Mutual fund evaluation is something that they do very well. But then I started thinking about how to use Morningstar.com best for mutual funds.
No-Load And Load Funds And Management Fees
Before we get into how Morningstar can help you choose a mutual fund there are a few characteristics of mutual funds that you should know. There are two main types of mutual funds, load and no-load funds. The main difference between the two is the cost. No-load funds have no front or back end commission. If you purchase $1000 of a no-load fund, all of that $1000 is invested in the fund. A load fund has a commission either front or back-end. A fund with a 5% front end load fee would have $950 working in the mutual fund.
However, both types of funds could still have expense ratios. Also known as the management expense ratio, this is typically the fee that goes to the mutual fund manager. There could also be marketing fees or administrative fees, so you’ll want to check on what fees could be charged before investing.
Finding the Best Mutual Fund
The best mutual fund will obviously vary from investor to investor, but the idea here is simple. Take a look around and familiarize yourself with what’s out there. Once you are on Morningstar, the first thing you’ll want to do is click on the Funds tab once you are on the site. You will notice that there is news on the first page with information on various mutual funds. You will want to scroll down to the middle right-hand side of the page. Under a section that says Find a Fund, you will want to click on Fund Screener.
There is also a premium fund screener that will take into account the rating provided by the Morningstar analysts, but the free fund screener is also good. You’ll have to login to your free account to access the screener. The screener includes criteria for fees, returns and fund type. Take some time and see what options come up based on your screens. Once you narrow down your results you will want to take the research a step further by checking out the prospectus.
What’s your process when choosing a mutual fund?
photo by digitalart
This post was included in the Carnival of Passive Investing
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{ 9 comments… read them below or add one }
I’m personally not a fan of mutual funds (compared to ETFs) but I appreciate the recommendation of Morningstar, which I think is a great service. I really like their “Instant X-Ray,” which reads the allocation in your portfolios and lets you know/updates you on how your portfolio is really balanced.
That is a really nice feature. I actually did a mini tutorial on how to set up a Morningstar portfolio also.
Morningstar is an outstanding resource to start doing research with. The rankings and reviews are really solid.
I like how they rank mutual funds based on risk and reward in their style classification. It makes it really easy to see what funds underperform.
Good post on mutual funds Latisha. Some basic education on funds, knowing which is load and no-load, and what the fees are, can provide a solid benefit for investors.
Thanks for the tips! Very informative post.
Morning star is the best when it comes to detailed research and info on the mutual funds. However on a personal note I only invest in Vanguard, Fidelity and T. Rowe price funds. Somehow they give me the returns that I am seeking.
Interesting. I wonder what makes you prefer those mutual fund managers?
I actually used Morningstar as well to choose the mutual funds that I’m invested in. It’s a nice resource.
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