Five specific things to look for in those quarterly and annual reports:
* Change in management. We spend a lot of words talking about how important the fund manager is, so make sure the manager you've chosen is still there. A change is inevitable at some point, of course, and it shouldn't necessarily be a signal to sell. You need to be aware, however, of who is handling your money.
* Change in fees. This is another key element to watch. Mutual funds are not required to keep fees at the level at which you originally signed up. Your job as a fund shareholder is to make sure that your returns don't suffer from "fee creep."
* Change in style. If a fund renowned for buying slow-growth, high-dividend blue chips starts buying the latest wireless optical serving router start-up that just hit the market, sit up and take notice. Keep an eye on your fund's holdings to make sure that they conform to what you think you bought -- and to the label that the fund managers assigned it.
* A change in turnover. Keep a close eye on the turnover rate of any fund you own. If you want to or have to own mutual funds, look for funds with lower-than-average turnover rates -- preferably no higher than 50% and hopefully much lower. For comparison, index fund turnover can be around 5% or lower.
* Change in performance. This is a tricky one. Occasional, or even somewhat frequent, underperformance is not unusual or unexpected for a good fund. Don't bail on your funds just because they have a bad quarter, year, or even two years. Do track performance, though. If you start seeing poor five-year returns, then it may be time to start looking elsewhere.
When you see a fund make significant changes in any of these areas, it's time to reassess your holding. That doesn't mean that you sell automatically -- some changes are for the better, or at least aren't bad enough to suffer the ill effects of selling.
* Change in management. We spend a lot of words talking about how important the fund manager is, so make sure the manager you've chosen is still there. A change is inevitable at some point, of course, and it shouldn't necessarily be a signal to sell. You need to be aware, however, of who is handling your money.
* Change in fees. This is another key element to watch. Mutual funds are not required to keep fees at the level at which you originally signed up. Your job as a fund shareholder is to make sure that your returns don't suffer from "fee creep."
* Change in style. If a fund renowned for buying slow-growth, high-dividend blue chips starts buying the latest wireless optical serving router start-up that just hit the market, sit up and take notice. Keep an eye on your fund's holdings to make sure that they conform to what you think you bought -- and to the label that the fund managers assigned it.
* A change in turnover. Keep a close eye on the turnover rate of any fund you own. If you want to or have to own mutual funds, look for funds with lower-than-average turnover rates -- preferably no higher than 50% and hopefully much lower. For comparison, index fund turnover can be around 5% or lower.
* Change in performance. This is a tricky one. Occasional, or even somewhat frequent, underperformance is not unusual or unexpected for a good fund. Don't bail on your funds just because they have a bad quarter, year, or even two years. Do track performance, though. If you start seeing poor five-year returns, then it may be time to start looking elsewhere.
When you see a fund make significant changes in any of these areas, it's time to reassess your holding. That doesn't mean that you sell automatically -- some changes are for the better, or at least aren't bad enough to suffer the ill effects of selling.
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