I've been investing since I was 16 and have accumulated over 20 years of independent investing experience.
Use Free Tools to Find Good Mutual Funds
There are 3 main ways to invest in the stock market: Individual stocks, mutual funds, and ETFs. People are often attracted to mutual funds since they offer diversification as well as the comfort of having your money under the care of a professional investment manager. In 2017 there were 9357 mutual funds available for purchase in the United States. How does one navigate through this mass of options to find a fund that will make enough money to meet their investment goals? There are simple techniques one can follow to select a good mutual fund that will allow them to meet their financial goals. This article will focus on using the Morningstar Fund screener, a tool available online that is absolutely free.
Morningstar Fund Screener
Use the Morningstar Fund Screener to Narrow the Mutual Fund Choices
The Morningstar Fund Screener is an effective tool at narrowing the list of the almost 10,000 mutual funds. This is a free tool available on the Morningstar website. First go to Morningstar.com, select the More drop-down menu and select Mutual Funds. On the next page select the Basic Fund Screener. When you click on the Basic Fund Screener link it will ask you to either sign in or create a free account with Morningstar. It takes only a few minutes to set up the account and it is entirely free. Once this is done you will be directed to the Fund Screener page.
You can screen according to 4 categories: Fund type, cost, ratings and risk, and portfolio turnover. For this particular article, we will be examining United States large capitalization stock growth funds. By definition, these funds invest in US-based companies with a market capitalization of $10 billion or more. A growth fund is a fund whose goal is to invest in stocks likely to increase in value rather than generate income.
In the screener, you will select US equity as the fund group and Large Growth as the Morningstar Category. For the manager tenure, I recommend selecting 10 years or greater. You want to look for managers that have a long track record with the fund. Every manager will have a random good year and bad year but their true ability becomes apparent over 10 years. For the cost and purchase section select $3000 as the minimum purchase. This may seem high but almost all funds have initial purchase requirements of at least $2500. I would select the expense ratio limit of no more than 1%. For the Morningstar category select 3 stars, 4 stars, 5 stars. I consider anything over 3 stars and above as investable.
For the return, select a return equal to or greater to the category average over 10 years. That means you are looking for a fund that performed equal to or better than the average large cap growth fund over the last 10 years. Select the show results tab. This will bring to a list of funds that meet the screening criteria.
Morningstar Fund Screener Returns List of Funds
Analyze the Funds Returned From the Fund Screener
Once you hit show results, the screener will return a list of funds that meet your criteria. It defaults to showing the funds in alphabetical order. I recommend viewing them according to performance. Select performance from the View menu located just below the Snapshot tab. This will sort the funds according to their performance. Next click on 10-year Return at the top of the fund list to sort all the funds according to their 10-year performance. From this screen, you can start clicking on the individual funds to start analyzing them individually. You can click on the name of the fund and it will take you to the funds Morningstar snapshot page. This page gives you detailed information on the individual fund.
Individual Fund Snapshot
Good Managers Perform Well Over Time
The type of fund you want to invest in depends on a multitude of factors. The most important of these factors is risk tolerance and investment goals. Regardless of your goals and risk tolerance, we all want to put our money in the care of a person who has a long track record of success. That is why this article focuses on the long term record of a manager. Any fund manager can have a good year or bad year due to luck or chance. Over the long term however, the good managers separate from the poor ones. Regardless of which fund you choose, I recommend you choose a fund with a long-tenured manager who has had long term success with that fund. This will help you to rest easy knowing that your money resides with someone who has shown they can be successful through the ups and downs of the stock market.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2018 George Johnson
Liz Westwood from UK on December 24, 2018:
You give good advice and make some interesting points. Track record is a key one. A good record counts for a lot.