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hi this is Ryan with our debt free lives calm today I’m going to go over what to look for in a mutual fund so in our previous videos we’ve gone through and shown you how to use the screeners to find a mutual fund now we’re going to cover what you should be looking for in order to find a mutual fund that fits your needs so this video is really meant for anyone who’s just starting to invest or anybody who’s wanting to take control of their own portfolio so we’re gonna go ahead and get started so for my examples I’m going to be using two different mutual funds so the first one is fidelity select technology’s portfolio and the symbol is FS PTX and then over on the right we have
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Blackrock technology opportunities be GSA X like I said they’re fairly similar so whether you’re using fidelity or Yahoo Finance what you’ll do is you’ll just enter it like you would a normal quote and here we have fidelity so over on the left you can see that we have fidelity select technology portfolio and this is the view that you’ll see when you go to fidelity and you type in the symbol and then over to the right we have Yahoo Finance and we use the Blackrock technology opportunities so you could use either one but for this example I’m going to be using fidelity but if you’ll notice here you can see that they both have the tabs on top and if you go through on Yahoo Finance
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you’ll be able to find basically the same information it may have a different name but for the most part the naming is going to be the same but it may be on a different tab so next we’re gonna go ahead and start off with these summaries so when we look at the fidelity website and we type in our quote we’ll get a page that looks just like this and the first thing that you’ll notice is we have the Morningstar snapshot and this is just going to give you a quick overview of this mutual fund so we have the overall rating return expense and then risk on this category and you’ll notice with really any financial institution they’ll all use Morningstar for the
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ranking so it’s very common throughout the financial institutions so we’re gonna start off by going to the details and then you’re gonna click the more button over here and so this is going to bring you to the fees and distributions so we’re going to talk about the expense and fees and so we have the expense ratio that we’re gonna focus on also the front end and back end load and then the twelve b1 charges and then the minimum investments one of the most important factors when you’re deciding on which mutual fund to go with is actually the expense and fees associated with it so I’m gonna go ahead and run through the expenses so we’ll start with fidelity first so over here you can see that
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there’s an expense ratio which is the gross amount which is 75 basis points or 0.75 percent and then the expense ratio when we look at the net it’s also the 0.75 and then that just means that there’s no contractual expense waiver or if we look over here you’ll see that the contractual expense waiver is 25 basis points or 0.25 percent one thing to call out about this is when you look at these they they’re not a permanent thing and they can fluctuate so if we look at this the net expense ratio is one point one seven percent and how they’re coming up with that is they’re taking the the gross expense ratio and then they’re applying the contractual expense waiver which is basically something that the
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mutual funds do to try to lower the net expense now when we come back over here so when we look at the expense cap this is basically just saying that that this funds expense ratio won’t go above 1.15 percent and then over here we have 0% for distribution and/or service fees and this is the 12 B – 1 charges and this is something that the SEC allows the fund managers to charge and it’s made up of such things as advertising to help promotes their fund and it’s used to pay a commission to brokers that push the sell of this particular mutual fund so for example when we look at this one Blackrock there’s 25 basis points or 0.25 percent now what this means is if
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0.25 percent now what this means is if you have a financial advisor they’re most likely going to be pushing this one because there’s going to be a commission associated with it so that’s one of the things to watch out for also now when we look at loads not all mutual funds are gonna have these fees and one of the things with fidelity is on some of these funds they they actually waive the front-end load or the back-end load so this is something that you’ll have to go through and actually do a little bit of research into to see if your brokerage firm waives this fee now if they don’t then you’ll be stuck with paying this 5.25% front load fee and so what this is this basically is a commission it’s
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charged at the beginning when you purchase the fund and you’ll see that there’s a schedule down here so depending on your investment your load fee may actually be different than the 5.25% so now we have the expenses and this is the total expenses per 1000 so for the fidelity fund you’re looking at seven dollars and fifty cents up to $11.50 and again the $11.50 is only if they were to increase the expense ratio so they have that limit at 1.15 so won’t go above the 11:50 over here if we look at the Blackrock you can see that it ranges from 14 dollars and 20 cents up to $69 20 cents and and this is assuming the contractual expense waiver is brought
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down to zero so again if you look at this if you’re investing a thousand dollars you know by having 7% taken out as a big hit well that load fee makes a huge difference as far as what your expenses are going to be so again this is going to be when you’re looking at these funds you’ll want to take this into consideration that load fee is something that you’ll want to watch out for because it’s usually ranges between I’d say 4 to 6 7% this is usually what you’ll see on there and next moving on to the minimums so you’ll notice over here we have there’s actually no minimum requirement but we look at the Blackrock fund we can see the initial investment
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needs to be at least $2,500 and then also any additional investments that you want to add to it need to be in amounts greater than 250 and so this is another thing to take into consideration is some of these funds will have a minimum amount that’s required to purchase this fund and if it’s something that you’re just wanting to purchase a small amount or you’re just getting started and this is one of the things that you’ll want to check so you want to keep that in mind when you’re looking at different mutual funds so next we’re gonna look at the composition so if you’re on fidelity you’ll want to go ahead and click the more and so what we’re going to cover in this one we’re going to cover market
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this one we’re going to cover market sectors portfolio diversification asset allocation and holdings so over here we have the sub industry diversification and then on this one we have the major market sectors so when you’re looking at the market sectors you’ll be able to get a better understanding of where your mutual funds invested so for example when we look at this one you’ll see that the weighting is very high in technology this been a targets allocation fund you would have seen a more evenly spread down here usually technologies higher up there and financial services you would have seen it distributed between the different sectors next we have the asset
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allocation you can see here the fidelity fund is mostly domestic equities and then when we go over to the Blackrock fund you’ll see that domestic makes up 63% and then it’s got 30% in foreign stocks so with asset allocation it’s very dependent upon your goal and what you’re trying to achieve as so me personally I have a lot more in foreign stocks than I do domestic so here we have the asset allocation so on the fidelity fund you’ll notice that the portfolio of this mutual fund is about 989 percent domestic equities were over here it’s 63 percent and then another big portion of it is made up of foreign stock so this allocation is important for me when I’m going through and if I
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want to increase let’s say for example current allocation debt to include more foreign stock then this fund would be a better option for me just based off the allocation so next we have the companies that make up this mutual fund and so over here we can see that the top 10 holdings make up 52% and there’s 87 securities that make up this portfolio now when we look at the Blackrock we can see that the top 10 make up 30% and there’s a hundred and twenty three securities that are being held with this fun mutual fund so one of the things you’ll notice is this 30% is significantly lower than the 52 over here and when you look at Microsoft the weighting it’s four point seven six
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percent so if we look at this mutual fund we can see the different securities and then the weighting over here and for some reason this one wasn’t displaying the weighting on here but if we looked at it’s gonna be significantly higher than these currently are so if we look at for example Microsoft and Apple these two are probably Microsoft’s probably can be closer to like 10% in order to get to the 52% so when you’re looking at this you can see the diversification between these two funds this this is a lot less diversified whereas the fund over here it’s a lot more diversified so it’s the amount is spread more evenly across the different securities and there’s also
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different securities and there’s also more securities that they’re holding so when you’re looking at risk if you have two similar mutual funds that let’s say they’re holding the same companies but the top 10 is let’s say the 30 percent and then the 52 one of the things you’ll notice is usually the risk associated with the fund that has the higher percentage for its top holdings it’s gonna be a bit more risky since you’re not as diversified so next we’re gonna look at performance and risk so if you go over here click on the performance and risk and so what we’re going to cover in this one is the quarter end a ver egde annual total returns the cumulative total returns the volatility
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measures we’re going to focus on the beta and then also historical fund performance so when you see this over here you’ll have the expense ratio again showing up here and then as we look at your 1 3 5 and 10 and then lifetime depending on how long the funds been around so if you look at the inception date that’ll tell you how long the funds been around so for example if this the inception date had been 2012 we wouldn’t have the tenure so this data just wouldn’t be here so the first thing you look at is you have the before taxes so we have a comparison of this mutual fund right here or fidelity select technology portfolio and then we have the S&P 500 which is a good gauge it’s an it’s an
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which is a good gauge it’s an it’s an index that’s composed of 500 different companies and it’s good to use as a benchmark if you’re comparing it to mutual funds individual companies you can see what the markets doing and then how this particular security is doing and then here we have the MSCI I am Infotech and this is similar to the sp500 in the sense that it is a weighted index except it’s going to focus on information technology and then you have technology in general and this one is gonna most likely more represent your mutual fund same thing with this over here technology is kind of a a bigger category and over here we have after taxes on distributions and then and this
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is after you go through and make a sell over here we have something just a little bit different so you’ll notice that this one has the load adjusted turn over here so you can see what the return is after the load adjustment which again is that fee that you pay in the very beginning for purchasing the mutual fund and then we have these two benchmarks for technology and so then when we get down here you’ll notice that the returns you know originally we have you know thirty three point six nine percent and over here you have twenty five percent return and then by the time you get done with taxes and all the additional fees you could see your returns down here they’re actually fairly similar so that
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just goes to show you how big of an impact those expense fees can have on your returns at the end of the day and so next we’ll you can look at the cumulative return so down here you can see if for again the sp500 and then also technology so you can see where the cumulative returns are and this is going to be again short short-term and the next thing we have is the volatility measures and usually what I just focus in on is the beta so if we look at the beta here it’s one point three three so for example if the market goes up 10% this fund should go up about 13.3% and then respectively this one should increase by 11% and then same being said if it goes down so for this
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one you’re gonna expect a lot more fluctuation and volatility this one should be more stable so depending on what you’re looking for if you have beta greater than 1 that means it’s gonna be more volatile than the market and then if you have something less than 1 it’s gonna be less volatile so you won’t have quite the same movements and then for historical fund performance you can go through and you can look at what was the total returns and then also dividend payouts and this is something that I’ll look at but I usually don’t make any decisions based off of historical performance so next we’ll go on to ratings click the ratings will go over the morning star ratings and so here we
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have the morning star rating and this is kind of you could view it as the gold standard for rating mutual funds and ETFs if all the financial institutions when you go through and the a mutual fund you usually always see no matter what financial institution you go to whether it’s Yahoo Finance etrade fidelity you’ll see the morning star rating on mutual funds and ETFs so it carries a bit of weight with it so here we have the morning star rating now one of the things to keep in mind is there needs to be at least three years of history so if a fund was just created they’re not going to have a morning star rating yet now the morning star rating is calculated based off a morning star
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risk adjusted return and it measures a few different factors one of them being the performance compared to similar funds and one thing that call out is the distribution of the stars so one thing to take into consideration is there’s only 10% of mutual funds and ETFs that have a five star rating and if you look at the 3 star rating again it may may say oh well that’s just average but actually it’s about sixty seven and a half percent of all mutual funds and ETFs fall under this category so it’s not necessarily a bad thing the other thing to take into consideration is this is all based off of historical so they may actually be improving for example if we look at
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Blackrock over here you can see over the last ten years they’ve had a three and then if we look at the five years it’s a four and then three years ago three so that’s one of the key things to keep in mind that we have right here so past performance is no guarantee of future returns so when you’re going through and you’re looking at mutual funds or ETFs looking at just historical performance again it’s no indicator of what will happen in the future that can’t be very misleading if you see some mutual funds with very high returns so this is just a quick overview of some things to cover when you’re deciding on which mutual fund to purchase so I provided a link below that’ll allow you
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to go to our website and view an outline of everything that we cover today and and I also go through and explain what I look for and why for each of these items and thank you for watching our video and if you do like please subscribe if you have any questions please visit our website and you can submit questions there or in the comment section and we will be posting additional videos that are targeted for anyone who’s just starting out on investing so please subscribe if you are and you can stay tuned and you’ll be updated of those new videos thank you