Do you look at mutual fund prices and scratch your head? Here’s some help that should make these prices more understandable
By: Robert F. Abbott, freelance writer and author of Big Macs & Our Pensions
While mutual funds often look like stocks and behave like stocks, we do need to make some distinctions. First mutual fund prices do not fluctuate through the day like those of stocks and bonds.
As this article from Zacks.com explains, fund prices update just once a day:
“. . . a mutual fund’s share price, or net asset value, updates only at the end of each trading day rather than constantly. During market hours, a mutual fund’s investments and shares outstanding fluctuate, which makes it tough to nail down an exact NAV. When markets close, it gathers the closing price of every security it owns and calculates its NAV, which is widely reported on financial websites.”
Follow through with the seven steps outlined in the Zack’s article if you’re new to finding out prices at the end of each day.
Mutual Fund Prices Reflect Underlying Prices
As you consider the prices, and perhaps wonder why they’ve gone up or down that day, remember that you bought a bundle of different stocks (or bonds) when you bought your fund.
If a fund, let’s say a stock mutual fund to keep it simple, consists of shares from 100 different corporations, then the value of your fund will reflect what those 100 stocks have done during the day. You won’t own actual shares of these corporations, instead each unit of the mutual fund will include fractions of each of the 100 stocks. And the price you see quoted will be for one unit of the mutual fund.
If the stocks in your fund mostly went up, your mutual fund will likely go up, and fund prices go down when the stocks in it mostly declined. Often, some stocks will be up and some will be down, and the price will reflect the average changes across all the stocks.
Understanding why individual stocks or bonds go up or down is a whole other question, one that no one has ever definitively explained. So, don’t sweat the reasons, or the daily fluctuations of mutual fund prices, but do keep an eye on the longer-term trends (such as 3-months, 6-months, a year) in case you need to make a change.
In this book, you will:
- Discover the Ownership Revolution, and what it means to your retirement funding.
- Find out how much of your lunch bill is a profit for McDonald’s, and who gets the profits.
- Learn how corporate profits fuel one of the greatest social programs ever developed.