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Tuesday, March 11, 2008

Investing Tip: Benchmark Comparisons

It's time for the latest investing tip from Morningstar ...

It's important to look at an investment in comparison with its industry average to determine whether it is beating its peers. This is where benchmarks come into play. Market indexes such as the S&P 500 or Nasdaq and sector averages such as the Consumer Average or Energy Average help us understand how our individual investments are stacking up against similar investment vehicles.

The Morningstar Investment Research Center coverage list has expanded to more than 1,900 stocks from fewer than 500 over the past five years. With that expanded coverage, we've become increasingly able to use our bottom-up analysis of individual stocks to draw conclusions about specific industries, broad sectors, and even the market as a whole. This is the reason why we added a new section called Industry on Morningstar Investment Research Center.

When you click on Industry you will be taken directly to the Sector Reports and Returns page. On the left navigation pane you will see sector reports on all 12 Morningstar sectors. By clicking on Quarterly Industry Reports you can download these PDF reports.

For instance, you can click on Sector Review Q4 2007 and dig down into the details of how a particular sector performed. It will give you details about which companies are undervalued versus overvalued. The report also covers five to six stocks that might be worthwhile to consider for your portfolio. With all these details and much more, you are in a better position to invest wisely.

You can also get daily index, sector, mutual fund category, and industry returns from Morningstar Investment Research Center directly from the home page.

Index Returns
An index is a good indicator of how different parts of the market perform and can be used as a benchmarking mechanism. Morningstar shows domestic, bond, municipal, and international index returns.

Sector Returns
These returns help investors to easily compare and understand the sector exposures of stocks and portfolios. Morningstar divides the economy into three "Super Sectors": the Information Economy, the Service Economy, and the Manufacturing Economy--each of which contains four more subsectors.

Industry Returns
Morningstar recognizes an industry as the company's primary area of business. Morningstar has more than 130 industries and it helps investors understand market exposure, peer performance, and standard benchmarking.

Fund Category Returns
Morningstar Category identifies funds based on their actual investment styles as measured by their underlying portfolio holdings. The broad categories are domestic-equity funds, specialty funds, international-stock funds, taxable-bond funds, and municipal-bond fund categories.

Morningstar Investment Research Center is great tool for new and veteran investors. It's chock full of unbiased analyst reports, tools for evaluating your portfolio, and lessons on how to invest. The best part is that it's free to all valid library cardholders! Begin now or learn more.

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