It’s time to go back to school with a quiz on your portfolio

Back-to-school time is about preparing for the year ahead and getting ready for the next challenge.

It's the same in mutual funds. Going back to school on a fund means re-examining the fund without the recent market numbers in hand. Instead, you are getting schooled on your reasons for buying a fund in the first place, and seeing what has changed since the fund was first put in the portfolio.

Going back to school on a fund should include a self-quiz on the fund that becomes the basis for future reviews. Here are the questions you'll need to answer:

What made this fund stand out to me in the first place?

Maybe it was the tip you got from a friend, adviser, magazine or newsletter, the ratings you looked at, or the short-term recent performance. It also could have been a low minimum initial investment or the presence of a specific manager you saw or read about.

Those things change over time.

Has this fund been within my range of expectations, and how has it done against its benchmarks?

The more clearly you articulate your expectations, the better. Maybe you bought the fund simply wanting above-average performance in the peer group, or perhaps you hoped for an average annualized return of 8 percent or more. It might have been the downside protection you felt the manager could provide when the market soured.

By laying out your hopes in terms of absolute returns, performance against peers or benchmarks, and how much they might swing in good and bad markets, you can see if the fund has lived up to your hopes.

Is the fund doing the job it was purchased for? Has it changed?

Every fund should have a job in your portfolio, whether it is simply covering a certain asset class or investment style, bringing you the expertise of a certain star manager. Over time, however, funds change, managers retire and the great fit you first purchased may be outside the comfort zone today.

Have there been any surprises?

When you buy a fund, you should write down the extremes, performance-wise, that would surprise you. If the fund has turned out to be too volatile for your tastes, that's a problem.

What has changed?

Is it the fund, the market or me?

Many investors are comfortable with funds, right up to the point where they live through the worst a fund can deliver. All of a sudden, there's too much risk. And most funds are pretty easy to live with when they're in the market's sweet spot.

A changed fund requires review, a changed personality could require an entirely new portfolio, and a change in the market should not, by itself, spur wholesale portfolio changes for the typical buy-and-hold fund investor.

Would I buy the fund again today?

Having re-examined your thinking, this question tends to answer everything. You may want to withhold the answer until looking at your entire portfolio, possibly at year's end. There may be tax considerations or other reasons for staying put, but if you wouldn't buy a fund today, you should at least question why you still want to own it today.

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