Interpreting Morningstar’s “Growth of 10K” Graphs

When I had less experience Morningstar’s “Growth of 10K” charts impressed me.  They made mutual fund investing appear to be a lucrative and easy strategy.  Mutual funds are certainly useful.  But the “Growth of 10K” chart should not be the sole basis for decision-making.

Morningstar (morningstar.com) is a fantastic source of free data for investors.  I use it all the time.  There are also subscription options available for those wanting more in-depth analysis.

But it is a business.  They have made a lot of money over the years from the mutual fund industry.  So it is a good idea to have the Morningstar Investing Glossary in hand before viewing their site.

The key thing to understand: “Growth of 10K” graphs include reinvestment of all dividends and capital gains.  That is interesting analysis.  But more should be considered before making a decision.  In the real world there is high likelihood that you might not always reinvest.  Life has ups and downs.  So there may be times when you need your dividends.  Comparing “Growth of 10K” to a graph of fund prices will show you more of a full picture.

I will illustrate using Franklin Income Fund Class A Shares:

1) Go to http://www.morningstar.com

2) In the “Quote” field at the very top center of the page type the symbol “FKINX” and hit enter.

3) The FKINX quote will come up showing a “Growth of 10K” graph by default.  In the top right-hand corner click on the link labeled “More…”.  The chart will come up on its own page in larger format with various control options.

4) At the far top left click on “Growth” from the drop-down list.  Three options will be shown.  Change from “Growth” to “Price”.  This will display a graph of the fund shares without reinvestment.

Notice that there is a significant difference between “Growth of 10K” and “Price”.  Without all those dividend and capital gains reinvestments propping things up the picture changes.  Franklin Income is not a bad fund.  It pays a good dividend and has a level of volatility likely tolerable to most investors.  But get as much information as possible before you buy this or anything else.  The “Growth of 10k” graph by itself does not tell the story.

 

© 2016 invessentials.com – Essentials of Investing

 

Articles presented here are general opinions for your own consideration.  They are not specific advice for any one investor.

Dividend Reinvestment, Growth of 10K, Morningstar

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