Most Affluent Investors Leave Selecting a Mutual Fund to Advisors

Selecting a mutual fund can be daunting, especially for new investors. There are thousands of them. Which to choose, and how?

Nearly half of investors surveyed by Millionaire Corner earlier this month said they rely on their advisor to do the research on what mutual funds in which they invest.

Those most likely to rely on the expertise of an advisor were those who identified themselves as retired (58 percent) and seniors over the age of 60 (55.5 percent) as well as senior corporate executives (52 percent) and business owners (50 percent). Those who do not participate in a retirement plan are, not surprisingly, more likely than plan participants to seek out an advisor (52 percent vs. 44 percent).

For those doing their own research, most experts recommend that before picking a fund, one should figure out their investment objectives (buying a home, saving for college, retirement) and how they will allocate their assets. This means deciding how much of your money to put into different types of instruments, such as stocks and bonds. “Without doing that,” Kiplinger cautions, “picking funds is like figuring out a route without knowing your destination.”

 In doing their own research, 44 percent of respondents said they look at a mutual fund’s historical returns. This may not tell a complete story, cautions Katherine Dordick, Business Strategy and Development for Millionaire Corner. “It is important,” she said, “to compare the time period you are looking at to the tenure of the fund manager. If, for example, the manager’s tenure does not match nor exceed the time period of performance, that means the fund’s performance  is not tied to his or her’s expertise.  (Nearly a quarter of respondents—24 percent—did say that they research the fund manager).

More than a third of investors (35 percent) said they consider the individual holdings that comprise the mutual fund. Senior corporate executives were most likely to conduct this type of research (43 percent).

While a majority of investors rely on word of mouth from friends and family in selecting an advisor, this does not appear to be how they research mutual funds. Only 23 percent said they rely on the opinions of trusted people who recommend a particular mutual fund.