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Navigate Your Portfolio in Morningstar in 20 Minutes

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AUTHOR: steve abramowitz on 7/08/2024

When it comes to managing my fund investments, Morningstar has been my crème de la creme for about 25 years.  It’s comprehensive, hugely informative and reasonably user friendly. It is one of the most responsible and ethical services around, periodically evaluating its usefulness both quantitatively and quantitatively.

Another thumbs up—Morningstar neatly complements Humble Dollar. It encompasses both traditional topics of personal finance like saving for retirement and sophisticated treatment of how to clear long-term investing hurdles like an unlucky sequence of returns.

But first a reality check. Before you feast on the info, you should know that access to many of the features described below are only available with an annual subscription of $249. Morningstar has been priceless for me and perhaps this post will help you decide if it makes sense for you.

If you’re still in the game, log on to Morningstar.com, enter and name your portfolio and begin your analysis. Along the way, I’ll point out some do’s and don’ts and share some quibbles.

Now you’re ready to create your portfolio (or watch list) and enter your holdings, accomplished with the Create and Modify drop-downs. It looks easy and straightforward, but I have a suggestion—don’t bother entering “Purchase Price” and any “Commission.” Those categories are only needed if you’re going to track your performance on Morningstar. It turns out to be a cumbersome procedure more easily arrived at on your brokerage statement.

Next, go to Tracking and Snapshot, where you’ll see displayed much of the usual data you can find on your fund family’s website, but with one important addition. That’s those ubiquitous Morningstar Stars, which assess the risk-adjusted performance of your funds.

Some takeaways from the Stars. The Star System (1=lowest and 5=highest) was not designed expressly for predicting success but they do, if only slightly. I give them some weight, but I’m not addicted to them so that my portfolios usually run between 3 and 4 Stars. I often put more weight on factors like the expense ratio, which Morningstar and others have found to be a very reliable predictor of long-term outperformance. I steer clear of 1-Star funds, which have been shown to be gross underperformers. Incidentally, the Star Ratings are accessible without the subscription.

Many readers in broad market index funds may be surprised to see them rated with 4 or 5 stars. How can this be, when these funds are usually designed merely to track the “average” 10% return of the market and should therefore be relegated to 3 status? Well, it just happens that the higher cost (and poor management) of their active counterparts cause them to underperform and bump up the index funds a notch or two.

Okay, you’ve set up your portfolio and checked the Stars and now you’re ready for my favorite service’s mother lode of analyses—the X-Ray tool. But before we go there, let’s give folks a chance to ask any questions about where we’ve traveled so far.

 

 

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