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Chapter 12. Looking for Mr. Goodfund > Reading the Labels—The “Nutritional Fact... - Pg. 124

Looking for Mr. Goodfund 124 Reading the Labels--The "Nutritional Facts" of Your 401(k) Funds Ever read the nutritional labels on the back of food or beverage containers? There's lots of good information back there. Now look at the front label. That's where you will find all the promotional stuff--things like "low-fat" and "low-calorie," "new and improved," and "all natural." These words are intended to catch your eye and get you to buy the product. Of course, when you turn the product around and read the nutritional facts, a different story emerges. "Low-fat" really means 10 percent lower than it was one year ago. If you ate enough of this "low-fat" product, you would gain 25 pounds. And the "serving size" is about enough to feed an ant. While mutual funds are more regulated than food and beverages, the fund companies are still out to promote their products. Through all the fluff, puff, and hype, you need to find the funds that are consistent with your objectives. The best way to do this is to read the fund's objective and compare it against the portfolios used to achieve the returns they're trying to sell you. Do the same review over the past three--or, preferably, five--years. By checking the fund's composition, you will always know if the fund's primary focus is safety, income, or growth. Take the Schwab S&P 500 fund as an example. Our at-a-glance chart shows that this fund is almost 100 percent invested in stocks. But closer inspection of the fund's prospectus tells us more--that the fund is really a blend of value and growth. The fund's composition will always tell you the true objective of a fund, but you must dig deep to find out what's in there. The Warning Signs: Is It Time for a Change? Here are six signs that all is not quiet on the fund front. While you should never dump a fund because