Summary:
Investors monitor their mutual fund investments to ensure that their goals are being met. The extent of tracking depends on individual preferences, risk tolerance, financial goals and investment strategies. This blog gets into the details.
Introduction to mutual fund investment tracking:
Investors monitor their mutual fund investments to ensure that their goals are being met. The frequency and extent of monitoring vary a great deal across investors, but the reasons for it are similar. These depend on factors such as:
- Active vs. passive investors: Active investors are those who proactively manage their investment portfolios to closely monitor their performance. They monitor the performance frequently, periodically review fund prospectuses and then go on to make the necessary adjustments. Meanwhile, passive investors are those who monitor their investments less frequently because they usually follow a strategy that entails buy-and-hold.
- Investment goals and time horizons: Those investors who have specific financial targets and shorter time horizons, which include earnings for retirement or making down payments, usually monitor their investments closely to make sure that their objectives are on track to being met. Investors who are in it for the long haul are usually unconcerned with short-term fluctuations.
- Risk tolerance: Investors with a lower tolerance for risk are more vigilant with regard to monitoring investments, especially when markets are volatile. This is to ensure that their portfolios are performing as per their comfort levels regarding risk.
- Financial knowledge and experience: Investors who have a strong understanding of markets and investment techniques are more likely to monitor their investments in mutual funds because they are able to analyse the information and data to make informed decisions.
- Technology and resources: Technological advancements have made it easy for investors to monitor their investments online, especially through mobile apps. Because these tools are readily accessible, the frequency of monitoring tends to increase. In fact, most investment platforms provide tools and notifications that help investors stay informed.
- Market conditions: In times of market and economic uncertainties, such as major market events and financial crises, most investors pay closer attention to their investments. With the information they gather, they decide on the course of action and make adjustments accordingly.
- Life events and changes: Life events such as marriage, parenthood, job changes and retirement make investors change their stance on how they monitor and adjust their investment portfolios.
Eight reasons why mutual fund investments need to be tracked:
Investors track and monitor their mutual fund investments for a number of reasons. The following are eight important ones:
- Performance monitoring: This aspect of it is the most basic need. Investors want to keep an eye on the performance of their mutual fund investments. This helps to assess how they are performing. They can be used to analyse the fund's returns in comparison to benchmark indices and historical figures. Underperforming investments can be identified and the necessary adjustments can be made.
- Risk management: The risk and volatility of mutual funds vary. By monitoring investments, it can be ensured that the portfolio is in alignment with the risk tolerance and investment objectives. When a fund becomes more risky than what was anticipated, a reallocation of assets proves to be a safer move.
- Diversification: Traders often use mutual funds to diversify their investments in various assets and sectors. By monitoring the investments, the preferred level of portfolio diversification can be achieved to help reduce risk.
- Rebalancing: Portfolios drift from their originally anticipated paths over time, which is why it is necessary to track and monitor them. With the information gathered from tracking, investors rebalance their portfolios by selling assets that are overperforming and then buying ones that are underperforming. This helps to maintain the desired allocation of assets.
- Costs and fees: Mutual funds entail fees, which include expense ratios and transaction costs. Monitoring the investments helps manage these costs and understand whether overall returns are being affected.
- Changes in strategy: Investors often decide that their strategies will change, which is when they choose to track their assets to understand if the current portfolio is what they would like to hold. These changes significantly impact the future performance of the fund and the suitability of its goals.
- Economic and market conditions: Short-term and long-term investments are affected by economic and market conditions. These require traders to adjust their positions because it can affect the performance of their portfolios. Through monitoring of the market and the portfolio, the necessary adjustments can be made to portfolios.
- Liquidity needs: Investors need to track mutual fund investments to ensure they have enough liquidity to meet any financial needs or emergencies in the short run. Accordingly, adjustments are made to ensure access to the funds, if needed.
Summing up
Some investors choose to monitor their mutual fund investments frequently; others choose a more passive approach. They rely on a 'set-it-and-forget-it' approach. In the end, the extent of tracking will depend on individual preferences, risk tolerance, financial goals and investment strategies. Irrespective of the approach, it is imperative to periodically review investments to make sure that they continue to align with the objectives and market conditions. Taking the help of skilled and experienced professionals makes the process even easier.