A disturbing study by the Financial Research Corp., Boston, found that mutual fund investors experience 20 percent lower returns than their investments provide. The study looked at rolling three-year returns. The results show that from January 1990 through March 2000, the average mutual fund's three-year return was 10.92 percent, while the average investor gained 8.7 percent. That’s because investors jumped around rather than stayed put. Using the above findings, a $10,000 investment would have grown to $28,930 over the period in the average mutual fund if you had stayed put, but the investor who jumped from fund to fund based on performance did not do so well. His or her investment grew to just $23,515. That is a difference of $5,415. The investor would have been better off paying an advisor a 1 percent annual fee to make sure he or she didn't move. The total cost for the adviser over the 10-year period would have been about $2,564. The investor would have also been ahead even paying an advisor a 2 percent fee. So it cost you more to jump in and out of stock funds due to fear and greed that to just hang tight.
The study looks at industry statistics on investor trading activity. It concluded that many investors chase after hot performing funds instead of investing regularly in their existing stock funds.
Investors are not totally at fault for jumping ship. Mutual funds hype their performance in advertisements and investment articles. So it's a two-way street. They entice people to buy on performance. When the funds don't deliver the goods, people sell. If you think you have sometimes caused your own lack of investment returns or been mislead by mutual fund ads, it may be time to get some answers and get a plan.
