No matter what format you read this month’s issue in, you will see a lot of red. Last year’s bear market in stocks and rise in bond yields led to losses for the overwhelming majority of mutual funds and exchange-traded funds (ETFs).

“The average equity and taxable fixed-income mutual funds (including ETFs) suffered their largest one-year losses since 2008 and on record dating back to 1974, respectively,” observed Tom Roseen, Refinitiv Lipper’s head of research services.

There can be a temptation to sell a fund after it has incurred a bad year of returns. Many mutual fund investors did just this. According to Roseen, “Conventional mutual funds suffered net redemptions of $982.1 billion in 2022, with equity funds (–$395.3 billion) suffering the largest outflows, followed closely by taxable bond funds (–$388.5 billion), municipal bond funds (–$152.2 billion), and money market funds (–$46.0 billion).”

These figures overshadow the large number of individual investors who, through discipline and/or inertia, didn’t react. Many in this group continued adding new dollars to their fund holdings throughout 2022. Judging by the monthly responses to our Asset Allocation Survey, many AAII members were in the disciplined group. That’s a good thing.

If you use our mutual fund and ETF guides to determine whether a current fund holding still deserves a spot in your portfolio, a few key questions can help you decide if the investment is a keeper or a stinker.

The first is 2022 returns. Yes, with relatively few exceptions, they stunk. After acknowledging this, see if the losses that any of your funds incurred were in line with their category averages. If the losses were larger, were prior-year gains better than the funds’ peers? If so, the bigger losses could reflect a more aggressive strategy. The total risk index can help you determine if this is the case. Higher comparative risk ratios imply greater volatility.

Next, ask yourself how comfortable you are with the downside volatility. This is not a question of whether you like seeing your portfolio drop in value—none of us do, including me—but rather your ability to cope with a fund’s losses from a financial and psychological standpoint.

Building long-term wealth requires the wherewithal to endure shorter-term drops in the market, but each investor’s personal freak-out spot is different. A fund that allows you to sleep soundly at night is better than one you sell in a downturn because its volatility is too much for you to handle.

Enhancements to Fund Tools on AAII.com

We’ve been working to enhance the AAII mutual fund and ETF evaluators, comparison tools and screeners.

The evaluator provides a useful overview of an individual ETF or mutual fund. You can find information about a fund’s returns, portfolio composition, costs and more. Last month, additional insights about each fund’s manager(s), performance, fees and risks were incorporated into it. Some of you may have already taken advantage of this change. To access the evaluator, just type in the mutual fund/ETF name or ticker into the search box located at the top of most pages on AAII.com.

The mutual fund/ETF comparison tool allows all AAII members to directly compare two or more mutual funds or ETFs. You can access it at www.aaii.com/investingideas. We’re in the process of adding new data and simplifying the ability to determine which fund ranks better on a given criterion—including returns, risk, cost of ownership and portfolio characteristics. Stay tuned.

Our mutual fund, stock and ETF screeners help find funds with specific characteristics, such as above-average performance, below-average expense ratios and low tax-cost ratios. They can be accessed by A+ Investor and Platinum subscribers at www.aaii.com/screening. We’re currently enhancing the interface to make these screeners even easier to use. As part of this revision, the online mutual fund and ETF guides—which are available to all AAII members and are updated monthly—will also be improved. We will let you know when the changes are live on our site.

Track Your Funds on AAII.com

Be sure to take advantage of the My Portfolio tool as well, if you’re not already doing so. My Portfolio serves as both a portfolio tracker and a great watchlist. With just one click, you can add a mutual fund or ETF you find in our guides—along with personal notes—to easily keep track of it.

Wishing you prosperity and good health,