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Senior Retirement Tips :: Mutual Fund Ratings
Mutual Fund Ratings: Why the Ratings for Mutual Funds May be Flawed
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Mutual Fund ratings are a helpful tool when deciding where to invest your retirement savings, but they’re inherently flawed.
For example, there are numerous companies that rate various mutual funds and those ratings hinge on a number of factors, but mostly past performance.
The problem is, those mutual fund ratings can vary from rating firm to rating firm and they can sometimes, unfortunately, reflect the interests of the rating firms themselves.
To learn more about how mutual funds ratings work and why the system may be flawed, keep reading.
How Mutual Funds Ratings Work
Basically, mutual funds are rated based on their past performance, both long term and short term. This is then compared to the general stock index to see how the funds measured up to the markets as a whole.
Some companies even create “randomized” mutual funds to add to the mix and see how a fund performs against a truly random mishmash of stocks and bonds.
Poor Practice
In July 2008, the Securities and Exchange Commission released a devastating 37-page report that said major ratings firms like Moody’s, Standard and Poor and Fitch flouted the conflict of interest guidelines and put their own profits ahead of their readers’ interests.
The mutual fund ratings industry was no longer objective. It no longer sought to simply rate funds and stocks based on their performance.
The old assumption was that these analysts were uninvolved and simply there to assess the financial health of everything from mortgages to mutual funds.
Why a Bad Rating Doesn’t Always Mean Sell
If a mutual fund receives a bad rating, that doesn’t always mean sell or jump ship.
Why? Because a bad rating can often pressure a bank or whoever’s in charge of the fund to put a new fund manager in charge of the mutual fund and maybe a little more manpower into improving its performance.
That’s why the most experienced mutual fund investors tend to put their money with well-known and successful fund managers rather than specific funds.
For example, they might follow a well-performing fund manager with their money even if the fund they’re going to has been rated poorly.
Where to Find Fund Ratings
For objective mutual fund ratings that are geared toward the consumer or everyday investor, try a resource like Forbes.
They rate their funds based on both bull and bear markets and therefore give you an accurate picture of a fund’s true ability, despite any down or upturns in the market as a whole.
Consumers also like MorningStar, a well-known, subscription-based company that releases regular mutual fund ratings along with news and important tidbits.
You can even receive news or text messages for specific funds that you want to follow.
See also:
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SeniorRetireTips.com :: Mutual Fund Ratings