'Price is Right' offers more sound advice on fund investing

The Baltimore Sun

Come on down! You're the next contestant on The Fund is Right!

When the last new Price is Right episode featuring long-time host Bob Barker airs this week, they won't replace the game show with something new about mutual funds.

But they could.

While fund investing might not have the thrill of winning a new car - and contestants would prefer cash prizes to winning $10,000 in a balanced fund - there is little doubt that consumers make the same pricing, value-for-the-money and expectation decisions with mutual funds that they do buying ordinary supermarket items or household products.

Last week, in honor of Barker's retirement, this column looked at how four classic Price is Right games could be tweaked to mutual fund contests. This week, it's four more pricing games; to borrow from one of Barker's past employers, investors might want to look at the truth these games hold, rather than suffering the consequences. Here are more pricing games, turned fund investor challenges:

Easy as 1-2-3: One of the simplest Price is Right games, the contestant must put three prizes in order of increasing value to win. In mutual funds, it's an asset allocation game, one where the investor prioritizes their holdings to meet their risk tolerances and goals. Confronted with a simple portfolio decision - how much to put into domestic stocks, foreign stocks and bonds, for example - the investor must decide how much risk to take and how to build their portfolio so that they can sleep at night while still generating sufficient return to reach the goals.

Magic number: On the game show, the prize on the left is cheaper than the prize on the right, and the contestant must find a number between the two to win.

In fund investing, the magic number is the one you must reach with savings so that you can retire comfortably. It is somewhere between the bare-bones, barely-getting-by minimum and the ideal, save-every-nickel-and-maximize-returns extreme.

Guessing at the magic number takes some work. Start by figuring out those two target numbers, which you can do by going to the Web site of almost any fund firm and using free calculators to estimate your needs.

The next step involves looking at your savings to see if you can achieve the minimum following your present course; if not, adjust your habits accordingly.

Side by side: On The Price is Right, the contestant sees two pairs of numbers, one over the other. To win, they must place the numbers side by side in the correct sequence to create the price of the prize.

In mutual funds, this common game works kind of in reverse from the television show. It's a side-by-side comparison of two funds to decide which one comes out on top and gets your money. The comparison can run over any number of factors, from past performance and expense ratio to ratings, rankings, manager tenure and more. One good place to play this game is using the free Fund Compare tool at www.morningstar.com.

After making this kind of comparison, go with the fund where the data inspires the most confidence.

Now or then: The Price is Right version places six grocery items in a circle, with their prices revealed.

In mutual funds, every investor should be equipped to play "Now or then," but most aren't. It involves writing down all of the conditions that are present - and that factor into - your decision to buy a fund. When making any new fund purchase, this should be the first thing to go into your files.

Say the fund was an above-average performer in its peer group, with a high ranking from Morningstar, a manager with a long track record, below-average costs and an asset size that made it nimble enough to do the job.

If the manager has changed, performance has lagged, assets have become bloated and the fund's performance is merely average, then you know the fund was a better buy then than it would be now.

If you would no longer buy the fund today, you "win the game" by making a change in your portfolio.


Charles Jaffe is senior columnist for MarketWatch. He can be reached by mail at Box 70, Cohasset, MA 02025-0070.

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