I recently posted about a flaw in the Morningstar website.   In general, Morningstar has a great site — one of the best on the web, so I was disappointed to find an error in the way that it graphs the return of exchange-traded funds (ETF’s).

If you click on the “ETF” tab of the Morningstar site and create a graph comparing the return of an ETF to a mutual fund, you’ll see that the value graphed for the mutual fund includes the distributed capital gains and dividends (as if they were reinvested).  This is the true return on investment, recognizing both realized and unrealized gains.  However, the graph of the ETF does not include the distributed returns and falls precipitously at the end of every year (when capital gains are typically distributed).

However, if you go to the “Mutual Fund” section of Morningstar and compare the same mutual fund and ETF, the graph correctly displays the value of both the ETF and mutual fund.

Three days after I posted, I received a nice note from Shawn Malayter, Director of Media Relations for Morningstar’s Software Division:

Helen,

I’m writing in response to your recent blog post on the Morningstar.com ETF chart. The issue seems to be that ETFs, because of the need for intraday charting, are using a stock-style chart that does not calculate total return in the way that you would for a mutual fund. Our software team is aware of the issue and has been working on modifying our ETF charts so that they provide total returns that are inclusive of any payouts. The changes should be completed soon.

Thank you for raising the issue, and we hope you continue to visit the site often.

Best regards,

-Shawn

My faith in Morningstar is restored. I’m impressed that they took the time to write.  I’m also happy that they’re working on the fix.  And, yes, Shawn, I certainly will return to the Morningstar site often.

Disclaimer: I am a customer of Morningstar as I do subscribe to their Premium services.  I was not asked to write this post nor did I receive any compensation.

Tags: comparing ETF to mutual fund, graphing ETF return, graphing mutual fund return, Morningstar

Asset allocation is perhaps the most important consideration when designing an investment portfolio.  Selecting an appropriate mix of stocks, bonds, and cash and maintaining the proportions through regular rebalancing, is about as sure-fire a winning strategy as it gets.

And the online financial service firms are there to help, right?  If I just follow the directions on the website, it’ll be easy as pie, right?  Wait a minute, hombre, not so fast.  Let’s compare the offerings of three large online services:  Schwab, Fidelity and Morningstar.

What exactly is “aggressive”?

The first step in selecting an appropriate asset mix is to determine what “investing” style matches your investment time horizon and your tolerance to risk.

If you’re nearing retirement, you want to have a more conservative portfolio than if you’re just starting out.  Workforce newbies have the most to gain from a high-risk-high-gain allocation, and more time to recoup, should the markets sour.  Likewise, if you’re the type who loses sleep when the markets see-saw, you might be more comfortable with a lower volatility portfolio, and accept that you might have to work an extra year — that may be a good trade-off for you.  Each website offers a walk-through questionnaire to help you evaluate where you fit on the spectrum of risk tolerance. Read the rest of this entry »

Tags: asset allocation, Fidelity, investment portfolio, investment returns, Morningstar, Schwab