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| Measuring Investment
Performance: Check It Out |
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Some parents keep track of how fast their kids are growing by marking
their height on a wall. They can look at the lines
and see that Junior's shot up a couple more
inches in the past few months. Investors like to
see growth, too, but they're more interested
in the money kind.
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There are several ways of keeping
tabs on your money's progress. The first is
to take a look at your bottom line. Usually you
can go to your plan administrator's or fund company's
web site and find out how much money you have in your
account. If not, check out the statements your plan
sends to you in the mail.
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Of course, the better your investments
do, the better your bottom line will be. But how
can you tell if your funds are going through great
growth spurts or if their growth is stunted?
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The easy way is to compare their performance with the
performance of an appropriate benchmark, such as the
S&P 500. Does your fund beat the index or trail
behind it? You'll also want to see how similar funds
(category peers) have done. Hopefully your funds tower
over their competitors. But if one of your funds has
been getting beat by similar funds for several years
running, you might consider keeping an eye on it.
Although all funds will go through periods where they
struggle, chronic underperformance may be a sign that it
is time to replace it. But you don't want to get into
the habit of selling low and buying high, as that will
quickly undermine your chances of meeting your retirement
goals. You also should consider the tax consequences
of selling your fund.
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You can use Morningstar Investment Profile reports to see how
your funds stack up. They'll tell you how each of your funds
is doing on an absolute basis, as well as how it rates against
benchmarks or similar funds. You'll probably want to check in
on your portfolio at least once or twice each year.
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