Deep Inside Morningstar's Toolbox

From an investor’s perspective, one of the great things about the Internet is that you can track all your investments in real time, and a lot of number crunching is at your fingertips. We’ve got a crack group of toolmasters coming up with new ways to help investors build better portfolios. Unfortunately, we can’t fit all our interesting work at the top of the home page, so you might have missed some of the tools we’ve launched lately. You can find them in the toolbox drop-down menu on the Portfolio page, or you can find a number of them in the right column of the Funds cover page. To bring you up to speed, I’ll take you through some of the tools that you might have missed. Judging by all the traffic we get, you probably already know about our two cornerstones, the Portfolio Manager and Fund Selector tools. Thus, I’ll dive into a few of the lesser-known tools here.

Fund Compare: Like the name says, this tool allows you to compare whichever funds you choose on a number of key datapoints like expenses or returns. The Results screen is very similar to that of Fund Selector, but the difference is you can explicitly choose the funds to compare whereas the Selector funds are based on the screens you run. Say you already have narrowed your field of prospective investments to Vanguard 500 (VFINX), Fidelity Magellan (FMAGX), and Janus Core Equity . You go to Fund Compare, load in the tickers, and hit Show Comparison. Going through the different drop-down options you’ll see that Janus Core Equity wins on returns, but Vanguard 500 wins on expenses. Check out the portfolio details and you’ll see that Janus Core Equity is quite different. It has much higher turnover, a much smaller asset base, and invests in the smaller part of the large-cap universe.

Fund Score: If that doesn’t decide it for you, click "Score These Results" on the top right of the Comparison Results page. This is a great way to narrow the field to one. Fund Score helps you to set priorities by allowing you to place a value on key datapoints. It comes loaded with seven key components, but you can pick the datapoint that matters most to you. I’ll choose three criteria: low expenses, long tenure, and high star rating. If expenses are most important, I’ll give that a 10, star rating a 9, and tenure a 5 if I think it’s not quite as important as the other two. It turns out Vanguard 500 wins hands down. If I’ve correctly ranked my criteria, then I should get the fund that best suits my needs.

Cost Analyzer:This tool is a little more specialized. It helps you figure out what your investments will cost you. Sure the expense ratio is helpful, but it isn’t the whole story. The expenses don’t often reflect an investor’s true costs alone because they might also pay a commission, a wrap fee, or a redemption fee. This tool allows you to plug in the actual fees you’ll pay as well as the frequency with which you’ll invest. It’s a great way to compare an exchange-traded fund with an index fund, or a load fund with a wrap-account fund.

Similar Funds:Say you read about a great fund, but you find out it isn’t available through your broker or it’s closed to new investments, or maybe there’s one annoying aspect about it that you don’t like. Plug in that fund’s ticker and we’ll look around for one with a similar portfolio and returns. For example, if you like Bill Miller’s Legg Mason Value (LMVTX), but could do without the high expense ratio, you could plug it in. The results are an interesting mix of obscure funds like Shepherd Street Equity  as well as funds I’ve long considered similar to Miller's, such as Selected American (SLASX).

Asset Allocator:This is a good place to start out. You plug in how much you’ve saved, how much you’ll put away each month, how long until you’ll start to spend your money, and how much you want at the end of that period. You also plug in your asset mix. The tool will then tell you what the likelihood is that you’ll meet your goal. If you find you’re going to fall short, you can then play with various scenarios to make it work. You can see what happens if you save more, alter your investment mix, scale back your goal, or even delay the date at which you start to tap into your savings. I wouldn’t use it only once to set up my portfolio, though. I’d come back maybe once a year to see how I’m doing. The bear market has taken a big bite out of portfolios, and you might find that you need to ratchet up the amount you’re saving. If you rebalance once a year, you should revisit your savings plan once a year, too.