Making the Ups and Downs Easier to Handle

By Todd Holden, Financial Advisor

Owning mutual funds can be hard. While arguably no other investment vehicle has generated more wealth for Americans than mutual funds, especially when used in a salary deferral retirement plan such as a 401(k) or Thrift Savings Plan, there are times that owning mutual funds can be brutally difficult. This is one of those times. Between inflation and war, it seems our mutual fund portfolios are under attack. It is turbulent times like these that we need to develop tricks to make ourselves better investors and not allow our fears to upset our financial goals.

The main reason that mutual funds feel difficult to own is that they are intangible. We never go to the grocery store and buy the “All-American Growth Fund Class A shares” or fill up our tanks with the “Mid-Cap Fund 2 Class I shares.” Quite often, we don’t know what our mutual funds own.

The trick I use with myself, my parents and many clients is to make mutual funds more tangible. We do this by looking at the companies our mutual funds own.

A client called recently concerned about her portfolio. The first thing we did was discuss how much of her portfolio was made up of stocks — in her case, about 55%. So I pointed out the fact that when she heard news about stock market gyrations, it really only applies to about half her portfolio. Understanding this fact soothed her a bit.

Then, we took a deeper dive into the stocks she owns through her mutual fund portfolio. Her top five stocks were Microsoft, Alphabet (aka Google), Apple, Amazon and UnitedHealth Group. The next five were recognizable household names as well — companies with which she is familiar and uses on a regular basis. When I read this list to her, I could almost hear her breathe a sigh of relief.

We spoke about the fact that the prices of these companies’ shares will fluctuate every day based on how the market does. In spite of these gyrations, she feels these companies have good prospects and are worthwhile to own. After making her mutual funds more tangible to her, she is more comfortable owning them.

The companies your mutual funds own may be different. Find out by reaching out to your advisor. It serves neither an investor nor their advisor well to develop a well-thought-out investment plan just to sell out during turbulent times. An advisor who helped you develop your investment plan should be there to help you through these challenging times.

Investing in mutual funds involves risk, including possible loss of principal. Fund value will fluctuate with market conditions, and it may not achieve its investment objective.