Evaluating Investments - Question 15

Won’t I get a better return by investing in a no-load mutual fund since I will not be charged a sales commission?

A study of investor behavior was conducted by DALBAR Financial Services of Boston and published in April, 1994. DALBAR studied 1,000 mutual fund investors for almost ten years. (This is called the Quantitative Analysis of Investor Behavior.) DALBAR measured the average returns that these 1,000 investors received to determine if investors who pay a sales load and receive advice from a financial consultant, enjoyed better, the same or worse returns than no-load investors do. DALBAR’s findings were:

1. Equity mutual fund investors who used a financial consultant outperformed no load investors by 19%.

2. Fixed-income fund investors who used a financial consultant outperformed no-load investors by 17%.

According to DALBAR, “investors who do not seek advice were more likely to panic and sell when the market dived. With the advice and knowledge of a financial consultant available when market conditions are volatile, clients were more likely to hold on to their investments during market downturns.”

Many investors who claim to be long-term investors sell at the first downturn. Without someone steady to reassure them that this negative situation is only temporary, investors do not reap the benefit of stable, long-term investments.