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About Stock Evaluation

I'd like to compare stocks. Can I evaluate more than one stock at the same time?
Yes, you can evaluate multiple stocks simultaneously. Just enter all the symbols you wish to compare in the Symbol(s) box at the top of the screen and click Go. Or click "Stock Comparison" to choose from a list of competitors' symbols. You'll notice that when you're looking at multiple symbols, the charts on each page of Stock Evaluator show you values for different stocks side by side. For instance, on the "Growth Trends" page you'll see a chart showing the revenues for each of the companies you're evaluating. Above the chart are links allowing you to view other measurements, such as earnings. The intrinsic value chart shows only one symbol at a time; choose from the pull-down menu to switch to another of the stock's you're currently evaluating.

What is Stock Evaluator, and how can I use it?
Stock Evaluator helps you appraise the health and performance of individual securities. If you're thinking of adding a given stock to your portfolio, but you'd like to double-check key historical data, find out how this stock measures up against the rest of its industry sector, and look at some derived data points such as management performance and intrinsic value, Stock Evaluator can answer your questions. And if you're comparing two or more stocks, Stock Evaluator will let you view their track records side by side. Measure for measure, you can determine which would be the better choice for you. Use the charts and detailed tables of data points, or for a quick overview check the indicators that appear at the foot of each page. Not sure what to make of a given statistic? Each page includes an explanation of what you can learn about a stock by evaluating the data on that page: • Revenues, net income, and cash flow let you see how well a company is translating the money it makes into earnings. • The financial health of a company can be measured in debt/equity ratios, which reveal how much debt is cutting into the company's bottom line. • Return on equity (ROE), return on assets (ROA), and return on invested capital (ROIC) measure the profitability of a company, and thus the management performance: Are managers successfully converting shareholders' equity, assets, and invested capital into net earnings for the company? • The price/earnings (P/E), price/sales (P/S), and price/earnings/growth (PEG) ratios measure how the market is valuing a stock in comparison to its earnings, sales, and estimated earnings growth. • Intrinsic value helps investors to assign a concrete value to a company, based on the sum of its future earnings; comparison of intrinsic value to current market capitalization, or of intrinsic price to current price, lets investors see if the market is valuing a stock above or below its "true" worth.


Understanding the Data

How do I choose whether to look at annual or quarterly reports?
Annual reports show you the long-term picture for a stock. Quarterly reports (which show the past eight quarters) give you an idea of recent performance. You may want to check annual reports to ascertain long-term health and then look at quarterly reports to see what kind of trend is going on now. For stocks with less than three years' history, Stock Evaluator will show you only quarterly reports.

How are all these numbers calculated?
Growth rates for revenues, net income, and cash flow are compound averages, derived using the least squares method. The 5-year growth rate calculation, for instance, uses six data points: a base year plus five subsequent annual data points. Fiscal year-end figures are used for the first five data points, with the calculation brought up to date each interim period by time-weighting the first and last points. • Cash flow is net income, minus preferred dividends, plus depreciation, amortization, and depletion. Total debt/equity and long-term debt/equity ratios are calculated over the last four quarters ("trailing 12 months," or "TTM"). For each quarter, debt is divided by common stockholders' equity (data coming from the quarterly report). The TTM ratios are an average of four data points, one from each quarter. Debt/equity ratios measure financial leverage: the higher the ratio, the greater the leverage. ROE, ROA, and ROIC figures are simple averages, with the data points used for the average taken at the end of each fiscal year. The 5-year ROE, for instance, averages five data points, the last one being the ROE from the most recent fiscal year. • ROE is annual earnings from total operations divided by common stockholders' equity. ROE measures the return on each dollar invested by the common stockholders in a company. • ROA is annual earnings from total operations divided by total assets. ROA measures how well a company uses its assets to generate income in a given year. • ROIC is annual earnings from total operations divided by the company's invested capital at the end of the year. (Invested capital is the sum of long-term debt, preferred equity, and common equity.) ROIC measures how well a company uses its capital to generate income in a given year. P/E and P/S are calculated over the past four quarters; PEG compares the past four quarters to the previous four. • P/E is most recent stock price (previous day's close) divided by cumulative earnings per share (EPS) from the four most recently reported quarters. • P/S is most recent stock price (previous day's close) divided by cumulative sales per share from the four most recently reported quarters. • PEG is P/E divided by the growth of the last four quarters' cumulative earnings per share (EPS) from the previous four quarters' cumulative EPS. Intrinsic value uses the assumption that the value of a company is based on the company's future earnings. The intrinsic value is essentially a sum of the company's future earnings, minus any long-term debt. Dividing the intrinsic value by the number of shares outstanding yields an intrinsic stock price. To calculate future earnings for a company, Stock Evaluator assumes two stages: • A 10-year period with one earnings growth rate and one discount rate (for which you supply the values) • A continuing period assumed to go on forever, with earnings estimated as one lump sum and a static discount rate of 12%

What units of measure am I seeing in the different charts?
The charts for revenues, net income, and cash flow show you total dollar values for each period. If you like, you can also view these charts on a semi-logarithmic scale. (See an explanation of this scale.) Total and long-term debt/equity charts show ratios. ROE, ROA, and ROIC charts show percentages. Price/earnings and price/sales charts show ratios. Intrinsic value charts show intrinsic value per share in dollars, compared to current price in dollars. Note that when you evaluate a single symbol, you may see more than one attribute graphed on the same chart. When you evaluate multiple symbols, you'll see only one attribute per chart, with data points for each of the symbols. Follow the links to view additional graphs of other attributes for these symbols.

How does the ranking work?
The ranking shows you at a glance how the stock you're evaluating stacks up against the rest of its industry. An indicator with the center unit filled shows that in this metric the stock is roughly on par with others in its industry. A filled unit to the right of center indicates that the stock is doing better than the industry average. A filled unit to the left of center warns that the stock is behind the industry average in this attribute. A specific breakdown of the indications follows: Measures for which higher figures indicate greater strength: Earnings (net income) growth: > 100% higher than industry average 25-100% higher than industry average 75-125% of industry average 25-50% lower than industry average > 50% lower than industry average Cash flow: > 50% higher than industry average 25-50% higher than industry average 75-125% of industry average 25-50% lower than industry average > 50% lower than industry average Revenue growth, ROE, ROA, and ROIC: > 30% higher than industry average 10-30% higher than industry average 90-110% of industry average 10-30% lower than industry average > 30% lower than industry average Measures for which lower figures indicate greater strength: Total debt/equity, long-term debt/equity, and P/E: > 50% lower than industry average 25-50% lower than industry average 75-125% of industry average 25-50% higher than industry average > 50% higher than industry average P/S: > 50% lower than industry average 25-50% lower than industry average 75-125% of industry average 25-100% higher than industry average > 100% higher than industry average PEG: > 30% lower than industry average 10-30% lower than industry average 90-110% of industry average 10-30% higher than industry average > 30% higher than industry average

How are industry segments determined?
Stock Evaluator uses Media General's breakdown of companies into some 215 industry segments, grouped into 9 major sectors.

Why don't the quarterly numbers match quarterly numbers I've seen in other reports?
Companies use different fiscal years and thus report their fiscal quarters differently. Financial information taken out of quarterly reports reflects the fiscal calendar used by each individual company. To help you compare the quarterly results of companies that may not be using the same fiscal calendar, Stock Evaluator uses calendar quarters (Q1 = January-February-March, Q2 = April-May-June, Q3 = July-August-September, Q4 = October-November-December). Quarterly results shown in Stock Evaluator are calculated from quarterly reports to reflect accurate data for the calendar quarters. Therefore, the numbers shown in Stock Evaluator may not match the numbers shown elsewhere. For instance, Stock Evaluator might report as Q1 data company X's earnings for January, February, and March, while the company's own Q1 earnings report is showing earnings for August, September, and October. In this example, Stock Evaluator is using accurate data for January, February, and March; however, because of the change in nomenclature the numbers won't match those you find in other Q1 reports.

How should I read the growth trends chart when it's shown on a semi-logarithmic scale?
A semi-logarithmic chart compares the rate of change in revenue, net income and cash flow, regardless of how large or small the absolute dollar value. The best way to read a semi-logarithmic scale is to focus on the direction and the steepness of the lines charted. If a company has an upward-sloping revenue line, that company has had positive revenue growth over time. A company with a downward-sloping line has seen revenues decline over time. The steeper the lines are, the greater the rate of change, whether positive or negative. The curve of a line can also tell you how a company's growth rates have changed over time. A straight line, going up or down, indicates that growth is constant. But if you're looking for a company with increasing growth rates, you'll want to look for a curve that grows steeper as it progresses. A curve that grows shallow indicates smaller and smaller rates of change in revenues, net income or cash flow. Example: Company A increases its net income by $40 this year, up from $100 last year. For the same time period, Company B sees net income increase just $25 from $50 to $75. On a dollar basis, Company A has higher profits and a larger increase in earnings. But when this year's growth in net income is charted on a semi-logarithmic basis, Company B's larger growth rate of 50% shows up as a line that is steeper than the line indicating the 40% revenue growth that Company A achieved. This type of graph is very useful when comparing different-sized companies but it is not useful if the companies have reported negative numbers. For practical purposes, negative numbers are not plotted on logarithmic graphs.


Intrinsic Value

How is intrinsic value calculated?
Intrinsic value uses the assumption that the value of a company is based on the company's future earnings. The intrinsic value is essentially a sum of the company's future earnings, minus any long-term debt. Dividing the intrinsic value by the number of shares outstanding yields an intrinsic stock price. To calculate future earnings for a company, Stock Evaluator assumes two stages: • A 10-year period with one earnings growth rate and one discount rate (for which you supply the values) • A continuing period assumed to go on forever, with earnings estimated as one lump sum and a static discount rate of 12% The exact formulae used are as follows:

How do I determine an appropriate discount rate for the intrinsic value calculation?
The discount rate is designed to take into account the gain you'd need to realize to make your investment in a given stock worth the associated risk ("opportunity costs"). The discount rate factors in: • The bond rate: Your investment could grow risk-free at the bond rate. You'll need to beat this rate to make your investment worthwhile. Matching the bond rate also means automatically that your money will grow at or above the rate of inflation; if you fail to keep up with inflation, the purchasing power of your investment will dwindle over time. • A "risk premium": You're probably looking to realize a certain percentage gain over and above the inflation and bond rates to make assuming the investment risk worth your while. The size of this risk premium is up to you. Add the bond rate and risk premium together to arrive at a discount rate suitable to your investment expectations. Enter the discount rate into the text box. If you wish, you can leave the discount rate set to the default. To calculate the default discount rate, Stock Evaluator uses a basic discount rate of 15% (assuming a 6% bond rate and 9% risk premium) for the first 10 years. After that, a lower discount rate of 12% is used. Assuming that younger companies pose a greater risk than older, more established companies, Stock Evaluator adjusts the default discount rate according to the age of the company (determined by the number of years of financial reports available) to allow for the attendant risk, as follows: • For 9 or more years, no risk adjustment • For 7 to 8 years, add 1% • For 5 to 6 years, add 2% • For 4 years, add 3% • For 3 years, add 4% • For 2 years, add 5% • For 1 year or less, add 6% So, for instance, the default discount rate for a 3-year-old company is 19% (the 15% basic rate plus a 4% risk adjustment). You may also choose to set the discount rate to mirror a stable rate of return by selecting from the pull-down menu, which includes the rates for a 1-year T-bill or 30-year long bond, among others. If you use a discount rate from the pull-down menu, be sure to click the radio button next to the pull-down to indicate that you'd like that value used in the calculation. Then click "Recalc" to see the new result.

How do I determine an appropriate earnings growth rate for the intrinsic value calculation?
Choose an earnings growth rate from the pull-down menu. You may wish to use the company's own average earnings growth rate, or you may wish to use an average earnings growth rate for the industry, sector, or S&P 500, depending which trend you expect the company to follow the most closely. (Companies are classified in some 215 different industries, grouped into 9 major sectors.) In each case, you can choose from 1-year, 3-year, 5-year, or 10-year averages. (If a multi-year average for the company is not available, some options may be omitted from the pull-down.) Stock Evaluator will default to the first growth rate in the pull-down list that is greater than 0% but less than or equal to 25%. Or change the earnings growth rate manually by entering a number in the text entry box to reflect your own estimate of performance. If you wish to enter your own growth rate, be sure to check the radio button next to the text entry box to indicate that you'd like that number used in the calculation. Then click "Recalc" to see the calculation results.

What is the internal rate of return (IRR), and how can I use it to evaluate potential investments?
The internal rate of return (IRR) is based on the reasonable premise that money in the present is worth more than money in the future; finding out exactly how much more is the purpose of determining the IRR. Stated concisely, the internal rate of return is the rate that would make the present value of future cash flows plus the final market value of an investment or business opportunity equal to the current market price of the investment or opportunity. However, a simple example makes the comparison much more understandable. Consider a company that is trying to determine the overall lifetime value of buying a $10,000 piece of equipment that will make them $2,000 a year in profit, but which will need to be discarded (essentially worth nothing) after six years. For comparison, let's assume that the company can put that same $10,000 into a bank account that earns 5% per year. (To simplify the math, assume that the interest is not compounded.) On the face of it, the 5% investment is easy enough to calculate—5% of $10,000 is $500, and after six years this puts the investment's total return at $3000; with the initial capital, the total value of this investment will be $13,000. Similarly, the equipment's calculation looks just as easy: at $2000 per year times six years, the equipment will earn the company $12,000, and assuming the equipment is worth nothing at the end of its lifetime, this makes the 5% investment look like the better choice by a tidy $1000. But these end-of-life investments don't take into account a critical value for a business (or for a personal investor): the income stream. The income stream tallies the amount of money coming in over a measured period of time—days, weeks, months, or for this example, years. At the end of the first year, the 5% account has only provided an income stream $500 to the company, while the equipment has given back $2000; this disparity keeps up every year till the equipment wears out. Because the income stream is so much higher, the equipment has a much higher net present value every year than the 5% account, even though the value of the 5% account is greater over the life of the comparison. The company can use this additional annual return to grow the business: to purchase additional equipment, to hire more employees, or to pay dividends to its own investors, potentially attracting more capital. Similarly, a simple comparison for the individual investor might be to evaluate a security that pays quarterly dividends (like our hypothetical company's profit-making equipment) against a CD or money-market fund that has a higher stated rate of return. Getting regular quarterly dividends gives you the option of reinvesting them and growing your nest egg more rapidly; if you're looking for an income-producing investment rather than saving for retirement, the dividend-paying investment may be even more attractive. Finally, if there's an internal rate of return, doesn't it follow that there's an external rate of return? Yes: in our equipment-versus-bank-account example, the bank account's 5% is the external rate of return.

What is the annualized rate of return (ARR)?
The annualized rate of return (ARR) is an adjustment to your rate of return, after you take compounding into account. For a simple example, assume you put $1000 into an account earning 5% per year, compounded annually. At the end of the first year, you have $1050 (your $1000 plus $50 in interest). At the end of the second year, however, your account contains $1102.50. This is because the bank pays 5% on the amount in your account, which was $1050. Likewise, the third year sees you with $1157.63, the fourth year with $1215.51, etc., because each year's interest is calculated based on the included interest from previous years. This works out to an annualized rate of return of 5.38% (or a little higher, depending on where the bank rounds off decimal points). How did they come up with that figure? It's $215.51 (your total interest) divided by four (the number of years your investment). The same math works against you when you take out a loan at 7.5% and see that it works out to 8.3%—in both cases, compounding works to make the annualized rate higher than the quoted rate of return. When you're evaluating an investment, be sure you're comparing apples to apples when looking at the returns quoted in the literature.


Further Research

How can I print this information?
The Summary page puts together Stock Evaluator's information. For the most concise print-out, go to the Summary page and choose the File > Print command from your browser's menu.

The commentary on the symbol I'm evaluating raises some questions, and I need to do further research. Where can I get more information on a particular stock?
Stock Evaluator gives you a good feeling for a stock's overall health, but you might wish to do more research before investing. From your Quicken.com Portfolio page, you can create a new watchlist that lets you track an investment over time, look for news and announcements, and research the company's fundamentals. You can also set up your Alerts to notify you of certain target activities on a security that interests you.

Where does the commentary come from?
The commentary was written by a team of experts on Quicken.com. It is tied to a stock's performance as compared to others in its industry group for each attribute evaluated.


About Fund Evaluation

What is Fund Evaluator and how can I use it?
Fund Evaluator is designed to make you more informed about investing in mutual funds. The Evaluator has three main sections: Return vs. Risk, Fund Holdings, and Cost of Ownership. A Summary page is also included to help you digest all the information presented in Fund Evaluator. You can access each of these sections simply by clicking on the toolbar near the top of every page. Risk vs. Return. It is always wise to view a fund's return in relation to the risk it generated. A fund with a solid return may not look so great once you realize its risk is incredibly high. Or a fund with just an average return may look a lot more interesting once you realize it subjected shareholders to very low risk. And one thing to keep in mind: Though it is both intriguing and a force of human nature to focus on returns, it is important to understand that past performance is no guarantee — or even great predictor — of future performance. Fund Holdings. It's important to understand what a fund actually owns. The Sector Allocation section on this page points out where a fund may be making very big or very small bets on a particular segment of the market. The Asset Allocation section clues you in to whether the fund is spreading its investments among a combination of stocks, bonds, and cash. By understanding sector and asset allocation issues, you can better determine how well a fund fits into your overall investment portfolio. Cost of Ownership. There are no free lunches in the fund world. On this page you can learn how much it costs to own a fund. The Cost Calculator lets you see how much a fund will pocket in fees and expenses based on the dollar amount and expected return that you enter. Summary. To pull together all the information presented in Fund Evaluator, use our easy-to-print Summary page.

How are fund categories determined?
Morningstar is responsible for determining a fund's category. Morningstar conducts its own analysis of what a fund actually owns — not what it might say it owns, or intends to own — and then assigns it to an investment category. The Morningstar category is an invaluable tool for fund investors. Once a fund is assigned to a specific investment category, investors can conduct meaningful apples-to-apples comparisons of one fund versus its peer group.

I want to compare funds. Can I evaluate more than one fund at the same time?
Yes. At the top of every page you will see a Symbol Entry box. You can enter multiple fund symbols in this box, placing a comma between symbols. If you don't know a fund's symbol, use the "Don't know the symbol?" link to the right of the entry box to look it up. Tip: To keep the page easily readable, you probably don't want to compare more than four or so funds at any one time. Another comparison tip: The most value comes from comparing apples to apples, not by mixing funds with different investment approaches. So, for the best results, you'd want to compare a large-cap growth fund with other large-cap growth funds, not with a municipal bond fund.

How often could a fund's ranking change?
The data from Morningstar is updated monthly, so fund rankings can change monthly.

Where do the statistics come from?
All data for the Fund Evaluator comes from Morningstar Inc., the Chicago fund data and research firm.


Return vs. Risk Comparison

Is there a way to evaluate risk and return together?
Alpha and Sharpe ratio look at return and risk together and tell you whether a fund did a good job of generating returns that compensated shareholders for the level of risk they incurred. Alpha tells you whether a fund's performance was greater than what would have been anticipated given its beta. The higher the score the better. The Sharpe ratio takes a look at performance in relation to standard deviation. Again, the higher the score the better. Any score above 1.00 is considered to be good.

How do I measure risk?
Beta and standard deviation are measures of risk. A high beta means that the fund experienced greater volatility than a standard market index, such as the S&P 500. Standard deviation measures how widely a fund's performance may swing from its expected return. The bigger the standard deviation, the greater the swing.

Does it matter if the fund manager is new?
The single most important factor to consider when assessing performance is whether the current manager running a fund was actually responsible for the long-term performance. A terrific ten-year performance record doesn't mean much if the current manager has only been around for two years. Current manager tenure is the first data point listed in the Return vs. Risk Comparison section.


Stock Sector Summary and Bond Credit Quality Summary

How can credit ratings help me evaluate a fund?
If your interest in a bond fund is to add asset diversification — typically bonds are a buffer when stocks fall — then you probably aren't interested in chasing high yields. If that's the case, then your main priority should be to invest in a bond fund that owns high-grade issues.

What are bond credit quality ratings?
For bond funds, Fund Evaluator displays credit quality ratings in place of sector diversification. Credit ratings indicate the degree of certainty that the bond issuer has the financial security to make all the interest and principal payments. The two major rating firms are Standard & Poor's and Moody's Investor Service. The higher a credit rating, the higher the quality of the bond issuer, and therefore, the lower the risk that the issuer will not be able to make all the payments. U.S. Treasury bonds — which are backed by the full faith and credit of the U.S. government — are considered to have the highest credit quality. After Treasuries, bonds are rated AAA, AA, A, BBB, BB, B, and Below B. Bonds rated BBB or higher are considered to be "investment grade." Bonds rated BB and lower are called "junk bonds." Lower-rated bonds typically have much higher yields than higher-rated bonds. That makes sense, since the issuer needs to offer a higher yield to compensate investors for the fact that the firm's financial strength is not as impeccable as that of an AAA-rated company. While it can be enticing to chase high yields, investors should never lose sight of the quality trade-off.

What ratings are considered investment grade?
Any bond rated AAA, AA, A, or BBB is investment grade. (See a full explanation of bond credit quality ratings.)

What's a junk bond?
Any bond rated BB or lower is a junk bond. (See a full explanation of bond credit quality ratings.)

Should I be concerned if a fund has a huge investment in one sector?
Not necessarily. Remember, if you choose to invest in an actively managed fund you are trusting the pro to make all the decisions, including sector diversification. In the right hands, a big sector bet can be what fuels a fund to outperform its peers. Of course, a big bet that is wrong can lead to underperformance. It is up to you to determine if you are comfortable with a manager's approach.

How can understanding a fund's sector diversification make me a better investor?
By knowing where a manager is making big and small bets, you can better understand what is driving a fund's performance. You can also use this data to make sure your overall investment portfolio — not just your funds — is well-balanced. For example, if you have a lot of your non-fund investments in technology, you may want to avoid a fund that has a huge technology stake. (If you've set up a Portfolio to track your investments on Quicken.com, you can check your overall portfolio's sector diversification as well as asset allocation using Quicken.com's Portfolio Analysis tool; just enter your holdings and click the "Asset Allocation" link at the top of the Portfolio page.)

Why isn't my fund invested in every stock sector?
Fund managers are not required to invest in every stock sector, and it is up to an individual fund to set limits on how much or how little a manager is allowed to invest in any one sector. (This information is available in a fund's prospectus, which every fund will send to you free of charge. But be forewarned: A prospectus is very dry reading. A better move can be to call a fund's toll-free phone number and ask a representative if there are any sector diversification guidelines. For fund phone numbers, get a fund quote and then click the "Background" link at the left of the page.)


Asset Allocation Summary

Should I be concerned if a stock fund has a lot of bonds or cash?
Only if you aren't comfortable with the ability of the manager. When you invest in a mutual fund you are giving the fund manager the responsibility to make the right moves. If you have done your research, and are confident in a manager's ability, then you should not be alarmed if the manager decides to invest in bonds or cash.

What's the difference between sector allocation and asset allocation?
Asset allocation is simply how a fund spreads its assets among a few broad types of securities: U.S. stocks, foreign stocks, U.S. bonds, foreign bonds, and cash. Sector allocation indicates in which industry sectors a fund's assets are invested. (Are you using a Portfolio to track your investments on Quicken.com? If so, once you've entered your holdings you can can check your overall portfolio's sector diversification as well as asset allocation using Quicken.com's Portfolio Analysis tool — just click the "Asset Allocation" link at the top of the Portfolio page.)

Can my stock fund really own international stocks too?
Absolutely. And that's not a bad thing. Again, if you trust the manager, you trust that he or she is investing in international stocks because of a belief that they represent a good value. That said, it is up to you to manage how much of your total assets you have invested in foreign markets. By checking the asset allocation of all your funds, you may find you have a sizable foreign stake.

If I invest in a stock fund, won't it be 100% invested in stocks?
Not necessarily. Funds have a fair amount of leeway in what they can invest in. Though the majority of assets must remain in stocks, managers can and often do invest in bonds and cash.

How can understanding a fund's asset allocation make me a better investor?
Let's say you decide that you want to keep 20% of your assets in cash, so you set up a money market account or invest in a CD. Then you invest the rest of your money in a stock fund. But that stock fund may not have 100% of its assets invested in stock. It is not uncommon for stock funds to have large cash positions, of 10% to 25% or more from time to time. This is not necessarily bad. Managers tend to "go to cash" when they can't find enough good buys to invest in. But it can be a problem for investors who expect a fund to be fully invested in stocks. The ability to see if your fund is invested in foreign stocks is another helpful tool. No doubt, you hear about how important it is to have exposure to international markets. But before you go out and invest in a foreign fund, you may find that your current stock fund is indeed investing a portion of its assets in foreign stocks. To check asset allocation for your entire portfolio, browse to Quicken.com's Portfolio page and click the "Asset Allocation" link at the top of that page.


Equity Portfolio Statistics and Bond Portfolio Statistics

How will understanding bond portfolio statistics make me a better investor?
You have two different risks when you invest in a bond fund: interest rate risk and credit quality risk. Your risk with interest rates is that when they rise, the price (and therefore value) of your bonds will fall. The longer the maturity and duration of your fund, the more sensitive it will be to interest rate changes. Understanding credit quality risk helps you sleep at night: When a fund invests in high-quality bonds, the fund and its shareholders can be assured that there is a high probability that the bond issuer will indeed be able to make all principal and interest payments.

How will understanding equity portfolio statistics make me a better investor?
You can buy a car by its looks, or you can understand what makes the engine run and how powerful the engine is. The same is true with mutual funds. By understanding a portfolio's average weighted price/earnings ratio, price/book ratio, price/cash flow, and 3-year earnings growth, you have a detailed owner's manual that lets you understand how a fund is approaching its investments.


Calculate Fund Expenses

What fees and expenses are included in the Cost Calculator?
The calculator accounts for all fees. The annual expense ratio, which includes management fees as well as operating costs and the 12b-1 fee, if any, is part of the calculation. If a fund charges an initial load (sales charge) or a back-end load, the calculator also accounts for those fees. All calculations assume you sell shares at the end of the stated period. (For back-end loads, the calculation assumes the fee is charged on the amount of the withdrawal. Some funds may levy the charge on the initial investment.) Taxes are not included in this calculation, nor are redemption fees, which some funds charge for the first six months or year.

How do I find funds with lower total expenses?
You can screen for low-expense funds in the Mutual Fund Finder.

Should I always look for funds with the lowest total expenses?
There's plenty to recommend being a bargain fund shopper. But that doesn't mean that a fund with a sales load or a higher expense ratio is necessarily bad. The sales load (either front-end or back-end) typically goes to pay the broker or financial advisor who sold you the fund. If that person offers you valuable advice or assistance the cost may well be worth it. Some funds, especially those sold through fund supermarkets, charge a 12b-1 fee (remember, that fee is embedded within the expense ratio). It is up to you to determine if the extra cost of that 12b-1 fee is worth the advice you receive from a professional, or the convenience provided by the supermarket.

If I own or buy a no-load fund, I won't pay any expenses, right?
Sorry, but all fund investors end up paying something. While a no-load means you don't have to pay a sales charge to invest in the fund, the fund company will deduct its annual expense charge, known as the expense ratio. So though you don't ever have to write a check to cover the cost of the expense ratio, it is indeed a fee that reduces your gross total return.

What projected annual return should I choose for the calculator?
If you are calculating expenses for a stock fund you should choose the option for either small-cap or large-cap stocks. For a bond fund, the Treasury rate makes the most sense.


Expenses

Do all funds charge a back-end load?
No. The majority of funds do not levy a fee when you decide to sell.

What charges are included in the expense ratio?
The expense ratio includes all management and operating costs for the fund. The 12b-1 fee, which only some funds charge, is also included in the expense ratio.

What is an expense ratio?
An expense ratio is the annual charge levied by all funds. The fee is deducted from the fund directly, so you will never see a bill for the charge. The average stock fund levies a 1.4% annual expense charge, while the typical bond fund has an expense ratio of about 1.0%.

Do all funds charge an initial load?
No. Many funds don't charge you a penny to invest. These are called no-load funds.


Summary

What do I do if a fund is good at some things but gets a low ranking for others?
It's rare to find a fund that is perfect. Take a look at your fund's rankings and see what tradeoffs you are willing to make. A fund may have a higher beta or standard deviation than you would like to see, but does its alpha or Sharpe indicate that at least the manager is compensating you for the high risk? Or perhaps you don't love the fact that the manager has 20% in cash. Check the fund's long-term performance: Are you comfortable that the manager has proven he or she knows what she is doing, even if that means investing in cash from time to time? Finding the right fund for you requires striking a balance among the different factors.

I'm still not sure about a fund; how can I do more research?
The main fund Quote page includes a great deal of helpful information. The year-to-date, one-year, three-year and five-year performance data on the Quote page is updated daily, including how a fund's performance compares to its category average, and where that performance ranks within a category. Tip: Enter a couple of fund symbols on the Quote page and you can instantly compare the performance of different funds. If you want to track fund performance, set up a Portfolio. If you already have a Portfolio, check out the new fund data now available in the Portfolio. In the Historic Performance view you can track a fund's year-to date, one-year, three-year and five-year performance compared to its category average.