Have you noticed the Long-Term Performance for your Investment Portfolio/IRA/401(k) improving recently? This can be especially the case for mutual funds and exchange-traded funds, which often espouse their ten, five and three-year historical performance statistics. Now, they will always include the term: “Past performance doesn’t necessarily guarantee future results.” in their boilerplate. But, there is not much chance that your portfolio took-off all of a sudden.

Mutual Funds and ETFs (exchange-traded funds) often tout their multiple-year performance…well when it looks good; however, they rarely highlight it when it is not. Currently, you might see an uptick in your mutual fund performance, which tends to be the most popular investment option in 401(k)s, variable annuities and other Employee-Sponsored Retirement Plans. Most often, the three, five and ten-year rolling-averages are listed.

A rolling average computes the average performance between the past specified number of years. Once 2012 ended, for instance, the negative 21% for 2002 was dropped from the ten-year U.S. Stock Market average, and 2012 was added. Also, when 2013 ends, the negative 37% return will roll-off the calendar, for 2008, and this year is already off to a pretty good start. Also, if you compute April 1, 2009 (just after the Market Recovery began), through March 31, 20013, there would likewise be a considerable improvement for the quarter-over-quarter five-year average.

I generally prefer to consider the individual years within the rolling periods. And, then compare them to other funds (in the same category) that you might be considering, and certainly to the underlying stock, bond or global index, which would serve as a “benchmark”. When comparing funds, make sure that you are using similar categories of funds. Don’t mix apples and oranges.

Generally, I recommend reviewing the Morningstar Fund Detail Reports, which your Financial Advisor should be able to provide–and explain them to you. The question is will they provide them? Many don’t. The Morningstar Detail also provides information regarding Risk, Composition (of the fund) and the Tenure of the Investment Manager. The Tenure is important; because, if the Manager is fairly new, the historical performance can be next to meaningless.


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