Money Matters - Mutual Funds: Your Statement
BOSTON (CBS) - Your mutual fund company sends out an annual statement the end of January. In addition, you should be receiving your 4th quarter report for 2010 next week.
[Audio https://assets1.cbsnewsstatic.com/i/cbslocal/wp-content/uploads/sites/3859903/2011/01/january-7-2010-money-matters.mp3|titles=Your Statement|artists=Dee Lee]
Many consumers do not open their statements. They just toss them in a pile or file them. My sister would put the envelopes in chronological order and wait for me to come to review them for her.
My strong recommendation here is find them and take the time to review them. There are tangible rewards for taking the time to understand your portfolio.
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? Real Estate?
• What's your asset allocation?
• Is your asset allocation compatible with your goals
Usually 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.
• Large Company Stocks
• Mid size Company Stocks
• Small Company Stocks
• Bonds
• Cash
• Real Estate
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 percent in stock mutual funds I would agree that would be okay for you.
But if you are 55 and want to retire in five years and had the same portfolio I would be unhappy. Too much risk. You need to modify the risk.
And if you are retired and had the same portfolio you would have had to sell some things at a loss the last couple of years.
It will take years for your portfolio to recover 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 -
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.
