Although it may seem like more “work”, reviewing your end-of-year mutual fund statement is extremely beneficial from a financial planning perspective. On a broader, macro level, reviewing your end-of-year mutual fund statement can help you clarify and organize your investment goals. On a more intricate, micro level, your end-of-year mutual fund statement serves as an excellent timeline. You can pinpoint the strengths and weakness of your investment plan by gauging your exact “progress” measured in “dollars and cents.”
Before commencing a review of your end-of-year mutual fund statement, you may want to gather a copy of the fund’s annual report, the mutual fund prospectus and your fund statements from the past 2-4 years for quick reference. As an investor, you may be keen to compare the performance of the most recent quarter and year-to-date over a historical time frame, (e.g., over the last 3 years) in order to gain a more detailed analysis of the fund’s investment performance.
Mutual fund statements contain standard information (with some minor differences) presented in an easy-to-read format. Usually, the first thing many of us want to do is look at the end-of-year balance. If we like the number, we may not bother to read the rest of the statement! Why should we, after all, we made money! If we are disappointed with the balance, then we might be more inclined to do more research. Regardless, it is still prudent to spend some time to read and study the entire statement. There are specific pieces of information that are of particular relevance:
1. The fund’s net asset value.
2. Beginning balance or value.
3. Ending share balance.
4. Dividends reinvested.
5. Reinvested capital gains (short-term and long-term).
6. Additional contributions.
7. Ending balance or value.
8. Change in the value of your investment (plus or minus).
9. The breakdown of your total investment assets (e.g., mutual funds) expressed in percentage form. These percentages refer to the relative magnitudes of different funds (or products) in your portfolio and indicate the extent of diversification.
10. Cost-basis per share.
11. Taxable dividends.
12. Taxable short-term and long-term gains.
13. Transfer of shares (and fees if applicable).
14. Withdrawals (and fees if applicable).
15. Sales charges (if applicable).
Digging Deeper Into The Statement
Once you have read through the statement, there may be certain core items that you will want to analyze in more depth to gauge your individual progress. Many new investors, and surprisingly, even some fairly seasoned investors, become overly fixated on the mutual fund’s net asset value. Tracking the movement of the fund’s net asset value can become an obsessive activity for some investors. Obviously, the net asset value is of paramount importance. We all want the net asset value to increase (who doesn’t?). However, the number of shares that one owns is equally important. Building up the number of shares in the account helps to increase leverage. Theoretically, as the number of shares increase, so does the amount in terms of reinvested dividends and capital gains and ultimately over time, the value of the investment.
The impact of fees and sales loads is often ignored or grossly underestimated by many investors. Load funds vary tremendously with regard to sales commissions and fees. Even no-load funds can have fees! Some load mutual funds impose a sales charge even on reinvested dividends and additional contributions or purchases. Over time, the various fees and commissions can erode the rate of return on your investment.
Evaluate the total amount of your yearly contributions to the fund. You can use this amount as a benchmark to see how effectively you are meeting your targeted saving and investment goals. Your end-of-year mutual fund statement is a valuable financial planning tool, one which you can utilize to build and refine an investment plan which reflects your individual objectives and needs.
For informational purposes and not intended as advice or recommendation.