RENEE MONTAGNE, host:
Now is about the time your mutual fund statements begin rolling in, telling you how much you've made or lost in 2007. Calculating how much your investments have made is critical to making smart investing decisions, but it's a lot harder than it would seem.
Joining us, as he often does on MORNING EDITION, to talk about this is Jonathan Clements. He is the personal finance columnist for The Wall Street Journal.
Good morning.
Mr. JONATHAN CLEMENTS (The Wall Street Journal): Good morning, Renee. It's great to be with you.
MONTAGNE: Don't most brokers or mutual fund show how much investors have made on their total investments?
Mr. CLEMENTS: Generally, when you get that end-of-year portfolio statement, all it's going to tell you is, you know, how much you had at the end of the year, probably it will tell you how much you added or withdrew at various points during the course of the year, and it might tell you the beginning of the year balance. In terms of the actual total portfolio return, that's a relatively complicated number for individuals to calculate on their own, which is why you'd like the mutual fund companies and the brokerage firms be doing that calculation for you. Very few brokerage firms and mutual fund companies give that information to investors.
MONTAGNE: Why don't brokers put that rather simple for them to calculate number right there on the front?
Mr. CLEMENTS: Well, a few of them do, but most don't. And the reason is obvious. I mean, if people really knew how their portfolio is performing, they would start to ask awkward questions about how much they're paying in investment costs and about how competent their money managers really are.
MONTAGNE: But how can someone who's listening to us right now and thinks I want to calculate my portfolio's return, how can that person do it?
Mr. CLEMENTS: What you want to do is take that beginning-of-year portfolio value and the end-of-the-year portfolio value but make some adjustments to that end-of-the-year number. Add back any money that you withdrew during the course of the year, or conversely you want to subtract the new savings that you made during 2007. If you do that and then you compare the beginning-of-the-year and end-of-year portfolio values, you'll have a rough idea of how your portfolio has done in 2007. You can then go and look at how some of the broad market indexes have performed and say, hey, did I keep up or maybe I haven't done so well. What you want to be concerned about is if you do that calculation and you discover that you've lost money in 2007, there's a lesson there.
MONTAGNE: What's the biggest mistake people make?
Mr. CLEMENTS: Well, unfortunately, when it comes to managing money, Renee, most of us are pretty much delusional. You know, we boast about our winners and we conveniently forget about our losers. You know, we scratch them from our mental calculations. But if you do all of that, you won't have a good handle on how good a job you or your financial advisers are doing of picking investments. So yeah, you really want to know what your portfolio performance number is.
MONTAGNE: Well, if you - if your investments are lagging, what do you do?
Mr. CLEMENTS: Well, you've got a couple of different options. I mean, you could go out and buy market tracking index funds. That will give you the market's return guaranteed every year. You could turn over your money to, let's say, a (unintelligible) financial planner and gets some good investment advice. Or alternatively you could go to one of the major mutual fund companies. They all offer these target-date retirement funds, which offer you sort of fixed investment mixes in a single mutual fund. You buy one of these target-date retirement funds, you put all your money into it, and then you go off and do something better with your life.
MONTAGNE: Jonathan Clements is the personal finance columnist for The Wall Street Journal.
Thanks for joining us.
Mr. CLEMENTS: It's my pleasure, Renee.