How to Research 401 (K) Funds on Morningstar
On Wednesday, I wrote about how to research the funds offered by your 401 (k) manager and suggested using sites like Yahoo Finance or Morningstar. Today I will go into detail on what you really need to look out for when looking for funds.
This was prompted by an email from Steven (this is not Steven from yesterday’s question):
Could you be thinking: 1) write an overview of the financial instruments available to search for stocks: Yahoo Finance, Morningstar, etc. 2) key pieces of information that we need to analyze along with an explanation of why.
Let’s start with Morningstar . In case you’re unfamiliar, Morningstar is an investment research firm that aims to provide ordinary investors with the insights that financial professionals have.
One of the great services it provides is the search function for just about any stock, fund or ETF. When you visit his site, you see him right at the top of the page.
To research a fund, look at your 401 (k) fund options. Your employer probably offers eight to twelve different funds, although some offer much more. To make a more informed decision, you can enter the fund name itself or its ticker into the Morningstar search bar. For example, your company might offer the following:
- American balanced funds | ABALX
- Fidelity Blue Chip Rising | FBALX
- JP Morgan’s Big Cap Rises | OLGAX
- Stock price rise T Rowe | PRGFX
- Vanguard International Growth | VWIGX
Etc. Enter your name in the search bar and you will be taken to a new profile page.
The quote you see is not necessarily the most important thing to look at as you should be interested in a long term investment. Thus, one-day price fluctuations do not really matter to you. But as you can see, it also breaks down spending and investment style / category right on the homepage.
Look at the following pages: Performance, Portfolio, Costs, and Purchase. The results show you, well, how the fund has done in the past (remember that you are interested in long-term success, although past performance does not guarantee future results). A portfolio breaks down what the fund is made of, including companies, industries, sectors, stock / bond mix, and so on. If you are trying to invest in a broad market index fund, it should have dozens to hundreds of different holdings. (Think about it: The S&P 500, which, for example, might be trying to track your fund, is made up of 500 different companies.)
Expenses detail the ratio of expenses and show how the price compares to the prices of other funds. You need to look for large-cap funds with an expense ratio below one percent and low-cap / international funds with an expense rate below 1.25 percent. The page also lists other types of commissions, which you can read about here .
Passively managed funds will have lower expense ratios than actively managed funds and (likely) will perform better as well. “The Vanguard 500 Index ( VFINX ), which reflects the Standard & Poor’s 500 stock index, has outperformed 80 percent of all actively managed US-focused large company equity funds over the past three years,” writes Kiplinger . It has an expense ratio of 0.14 percent, and you can find other broad or general market funds from Vanguard and Fidelity with lower commissions (if your employer offers them to you, that is).
Finally, ” Buy” tells you if you have any requirements to buy the stock, such as a minimum investment. You might also want to consider the Morningstar rating , although I’d look at the other categories first.
All pages contain helpful tips, but I would highlight these four. This article has a good analysis of what you can find out on the profile page.