Mutual funds can be complicated. It’s easy to get lost down a rabbit hole of information, especially for new investors who simply don’t know where to start. Many investors choose to passively trust their funds to a financial advisor or just leave them undisturbed and unmonitored in their 401(k) plan. While advisors are useful and often irreplaceable partners in your financial journey, the best investors have at least a modicum of knowledge about their own investments—and that doesn’t necessarily involve poring over massive and poorly organized spreadsheets.
A mutual fund fact sheet allows even the greenest investor to be aware and up to date on the key facts of a fund. Through simple formatting and a focus on easily digestible data, these little nuggets of knowledge are a perfect starting point for the timid or uninformed investor.
What Is a Mutual Fund Fact Sheet?
A mutual fund fact sheet is a basic three-page document that gives an overview of a mutual fund. For potential investors, this is a necessary and easy report to read before delving more deeply. “It's a great starting point when you're evaluating an investment,” said CFP Roger Whitney of WWK Wealth Advisors.
The fact sheet will give you the following information:
- Fees: Before you buy a fund, you need to analyze what fees it comes with, including the fee paid to the fund’s manager. Good returns can be easily obliterated by high fees.
- Risk assessment: The fact sheet will show how risky a fund is. Depending on your age and other holdings, a fund may be too risky for you.
- Returns: The fact sheet will show the fund’s results over the last 10 years. This is crucial to know before you buy a fund, as it gives a sense of the fund’s history and current trajectory.
You can find this fact sheet on the fund’s company website. You can also call and request a copy to be mailed to you.
Why Should I Read It?
These fact sheets are made to be read by the average investor, so you don’t need a wealth of investment or financial knowledge to understand what you’re looking at. The document concisely explains the pros and cons of that particular mutual fund.
If you’re choosing an investment, you should take the time to read about it carefully. That was often a tall order before fact sheets became the norm, but these days it’s easy for even the most reluctant investor to stay informed. Much of that simplicity comes from easily understood language and carefully constructed formatting.
“It's usually broken down into simple to understand verbiage and charts that can often be reviewed at a glance,” said compliance analyst John Schneider. So what if you’ve read the fact sheet and feel confident in your decision to purchase? Don’t jump the gun just yet, advised Schneider.
There is also a mutual fund prospectus, which contains more detailed information than the fact sheet. According to Schneider, anyone deciding to buy a mutual fund should read a prospectus as well. This is where an advisor can come in handy. While any investor may be able to suss out the basic facts of a mutual fund fact sheet, an advisor can help you dig into a prospectus in order to feel truly confident about your investment.
The Bottom Line
You don’t have to be a market whiz to stay on top of how your mutual funds are doing. While there’s always a time and place to seek professional guidance, anyone seeking to make investing a part of their lives needs to begin learning somewhere. A mutual fund fact sheet is a great place to start. Read these easily digestible fact sheets and take comfort in the fact that such a short piece of reading can provide so much peace of mind.