Choosing an Index Mutual Fund

While index funds are supposed to track the performance of a market index, the index chosen can dramatically affect your investment returns. One of the factors that determines this choice is your tolerance for risk.

1. Visit www.IndexFunds.com and complete the Quick Risk Capacity Survey. What is your Total Weighted Score and which portfolio is recommended for you?
2. Review the discussion of your results. Do you agree with the assessment given for each question?
3. Click on the link for the indicated portfolio. Which sectors make up the largest proportions in the fund? What sectors are represented in smaller amounts?
4. If you had invested $100 eighty years ago, what would your portfolio be worth today?

Mutual Fund Report

Go to www.morningstar.com. In the Morningstar Tools section, click on the link for the Mutual Fund Screener. Set the criteria you desire, then click on the Show Results tab. If you get no funds that meet all of your criteria, choose the criterion that is least important to you and relax that constraint. Continue the process until you have several funds to compare.

1. Examine all of the views available in the drop-down box menu (Snapshot, Performance, Portfolio, and Nuts and Bolts) to answer the following questions:
• Which fund has the best expense ratio?
• Which funds have the lowest Morningstar Risk rating?
• Which fund has the best 3-year return? Which has the best 10-year return?
• Which fund has the lowest turnover ratio? Which has the highest?
• Which fund has the longest manager tenure? Which has the shortest?
• Do you need to eliminate any of the funds from consideration due to a minimum initial investment that is higher than you are capable of making?
2. On the basis of what you know about the funds, which one do you think would be the best one for your investment?
3. Select up to five funds that are of the most interest to you. Click on the button that says Score These Results. Customize the criteria listed by indicating their importance to you. Examine the Score Results. Does the fund with the highest score match the choice you made in Part 2?