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I have an investment account, opened in my name by my father years ago that I just discovered 4 months ago. It has actually been doing decently well in the last 4 months since I discovered it. I started with $4,600 and it is now worth $5,070 - so about a 10% gain in 4 months.

However, I ran some reports on the performance of the S&P 500, NASDAQ and Dow Jones and they all seem to be out-performing this account, if I'm reading the graphs properly.

I am relatively new to investing, so I very well could be reading the data wrong. If so, I'd appreciate help on that point. Otherwise, should I pull my money out of this account and go with something closer to the average of these other standards?

As a note, I need something pretty low maintenance because I don't do this full-time by any means. I would just like to keep my money growing at higher than a savings or money market, with a low to moderate amount of risk.

EDIT:
To clarify, my account is with BlackRock and the fund is titled "MID CAP GROWTH EQUITY-CLASS A" if that helps. Not totally sure what that means.

  • What is your money invested in currently? – fideli Feb 3 '11 at 17:53
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    Being new, you are checking the value a lot. This is normal, but your should stop. Make sure you investment choices are good for you and your risk level, feed it money regularly and maintain it once or twice a year. You will go nuts watching the graphs. – MrChrister Feb 3 '11 at 18:29
  • Unless you want to be a very active trader, but you say you want to be low maintenance. – MrChrister Feb 3 '11 at 18:30
  • What is your investing goal? Do you 'just' want to track something like the Dow or S&P 500? Beat them? If so, by how much? – Timo Geusch Feb 3 '11 at 20:05
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    Please reconcile these two statements: I have an investment account that has been actually doing decently well in the last 4 months since I opened it. and This account was opened in my name by my father years ago and neither of us have kept up with it until I received a random letter in the mail reminding me of its existence. Are they the same account? Do you have 2 accounts? – George Marian Feb 3 '11 at 22:14
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Around Oct 03 2010 the SPY closed at 113. Today it is trading at 130. After four months, that means that the S&P is up 15% over that particular 4 month period.

You said you need something pretty low maintenance, and you are comparing your returns to the S&P 500 (which as @duffbeer703 points out is a good thing to compare against because of its diversification).

To kill two birds with one stone, I would sell your fund that you have and take the proceeds and purchase the ETF SPY. SPY trades like a stock but mirrors the S&P 500's performance. It has extremely low fees (as opposed to what I suspect your BlackRock fund has). You can own it in an Etrade or Fidelity or other low cost broker account. Then you will be extremely low maintenance, fully diversified (among stocks) and you don't have to compare your performance against the S&P :)

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    SPY - the original S&P 500 Index fund and enjoys continuing popularity, which is generally a good thing, but as an ETF you must pay fees to trade it and your dividends will be returned to you as cash. You may be better served by an S&P 500 index fund like Vanguard 500 Index Fund Investor Shares (VFINX) which charges no fees to purchase or to reinvest dividends - though it has a higher expense ratio for accounts under $10,000. (Your broker may charge you to purchase it, but you can also get it for free on vanguard.com). – fennec Feb 4 '11 at 3:08
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    Incidentally, note that selling your mutual fund to purchase another mutual fund or an ETF may have tax consequences. You should be prepared to pay taxes on any short-term and long-term capital gains in that fund. – fennec Feb 4 '11 at 3:09
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    Vanguard's S&P ETF (Ticker: VOO) has the same 0.06% fee as SPY and can be traded for free within a Vanguard brokerage account. – Dan Carroll Feb 6 '11 at 4:41
  • Can you guys clarify what Vanguard is and how it's different than any other brokerage? I've heard it's name a lot in the realm of low-cost, low-maintenance investing options but I'm still unclear on its business structure. – NoCatharsis Feb 7 '11 at 14:18
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    @NoCatharsis posted it here: money.stackexchange.com/questions/6154/… – Michael Pryor Feb 7 '11 at 16:05
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You say:

To clarify, my account is with BlackRock and the fund is titled "MID CAP GROWTH EQUITY-CLASS A" if that helps. Not totally sure what that means.

You should understand what you're investing in. The fund you have could be a fine investment, or a lousy one. If you don't know, then I don't know.

The fund has a prospectus that describes what equities the fund has a position in. It will also explain the charter of the fund, which will explain why it's mid-cap growth rather than small-cap value, for example. You should read that a bit. It's almost a sure thing that your father had to acknowledge that he read it before he purchased the shares!

Again: Understand your investments.

  • Absolutely. One needs to understand their investments. While it may seem daunting at first, most of the concepts are quiet accessible to just about anyone with enough interest. – George Marian Feb 4 '11 at 6:07
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    "Mid-cap growth" means it invests in medium-sized companies that it thinks can grow their business (as opposed to "value" stocks which are just cheap). Equity means stocks. Inv Class A means "investor shares, class A" (as opposed to institutional shares) - this affects the structure of the fees you pay and account minimums. Obtain the prospectus. Read the prospectus. Look it up on the Internets. The ticker is BMGAX. quote.morningstar.com/fund/f.aspx?t=BMGAX – fennec Feb 4 '11 at 16:03
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    Understand my investments - I intend to do so and that's why I'm here :) – NoCatharsis Feb 7 '11 at 14:20
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Typically you diversify a portfolio to reduce risk. The S&P 500 is a collection of large-cap stocks; a diversified portfolio today probably contains a mix of large cap, small cap, bonds, international equity and cash.

Right now, if you have a bond component, that part of your portfolio isn't performing as well. The idea of diversification is that you "smooth out" the ups and downs of the market and come out ahead in most situations.

If you don't have a bond or cash component in your portfolio, you may have picked (or had someone pick for you) lousy funds.

Without more detail, that's about all that can be said.

EDIT:

You provided more detail, so I want to add a little to my answer. Basically, you're in a fund that has high fees (1.58% annually) and performance that trails the mid-cap index. The S&P 500 is a large-cap index (large cap == large company), so a direct comparison is not necessarily meaningful.

Since you seem to be new at this, I'd recommend starting out with the Vanguard Total Stock Market Index Fund (VTSMX) or ETF (VTI). This is a nice option because it represents the entire stock market and is cheap... it's a good way to get started without knowing alot.

If your broker charges a transaction fee to purchase Vanguard funds and you don't want to change brokers or pay ETF commissions, look for or ask about transaction-fee free "broad market" indexes. The expense ratio should be below 0.50% per year and optimally under 0.20%.

If you're not having luck finding investment options, swtich to a discount broker like TD Ameritrade, Schwab, ScottTrade or Fidelity (in no particular order)

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Fire your fund manager. There are several passive funds that seek to duplicate the S&P 500 Index returns. They have lower management fees, which will make returns lower than S&P, and they have less risk by following a broadly diversified strategy (versus midcap growing stocks). There's also ETFs, but evidence is growing that they're not as safe as hoped.

But here's the deal: the S&P has been on a tear lately. It could be overvalued and what looks like a good investment could start falling again. A possible alternative would be one of the Lifetime funds that seek to perform portfolio adjustment with a retirement decade target; they're fairly new which mostly means nobody knows how they screw you over yet. In theory, this decade structure means the brokerage can execute trading cash for stocks, stocks for bonds, and bonds for cash in house.

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    Your link about ETFs is mostly irrelevant. It refers to ETFs "stuffed with exotic derivatives and super-concentrated bets on very risky markets". A normal S&P500 index fund isn't exotic or risky (well, not in excess of the stocks it holds) and it uses no derivatives. It's about as "vanilla" flavor as you can get. Even the "flash crash" didn't affect a standard vanilla buy-and-hold investor with an ETF one lick unless they were trying to play games with market timing and stop-loss orders that blew up in their face. – fennec Feb 4 '11 at 3:21
  • Wow, way over my head on this one, guys. – NoCatharsis Feb 7 '11 at 14:23
  • fennec: ever read on your ETF the statement "this fund tries to track the returns of the Index but might fail to track" and wonder how that might happen? One reason might be using a basket of options rather than stocks to track the index. – jldugger Feb 7 '11 at 21:57
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    I've read it in my fund's prospectus. I've also read that my fund "attempts to replicate the target index by investing all or substantially all of its assets in the stocks that make up the index holding each stock in approximately the same proportion as its weighting in the index." It's a standard boring unleveraged S&P500 index fund. You really don't get much more plain-old-vanilla than that. – fennec Feb 8 '11 at 3:34
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absolutely $SPY ETF is the way to go if your point of comparison is the S&P and you want to do low maintenance.

  • ETFs are pay-to-trade and reinvesting dividends is trickier. A broker may or may not offer a dividend reinvestment plan where you can own partial shares; there's also probably several pages of fine print on it. – fennec Feb 4 '11 at 3:16
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The majority (about 80%) of mutual funds are underperforming their underlying indexes. This is why ETFs have seen massive capital inflows compared to equity funds, which have seen significant withdrawals in the last years.

I would definitively recommend going with an ETF. In addition to pure index based ETFs that (almost) track broad market indexes like the S&P 500 there are quite a few more "quant" oriented ETFs that even outperformed the S&P. I am long the S&P trough iShares ETFs and have dividend paying ETFs and some quant ETFS on top (Invesco Powershares) in my portfolio.

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