Mutual fund investors do understand


April 22, 1996|By Bill Atkinson

People who put their money into mutual funds aren't investment dunderheads.

At least that's the conclusion reached by the Washington-based Investment Company Institute.

The trade group, which represents more than 6,000 mutual funds that have nearly $3 trillion in assets, surveyed 657 investors in stock and bond funds, and found that they actually have a high understanding of risk.

The survey says that 69 percent of mutual fund investors make sure they understand a fund's investment risk before they buy shares, and most investors are in for the long haul, so they look at risk over an eight-year time horizon.

"It really didn't surprise me," said Paul Schott Stevens, general counsel with the ICI. "The conventional wisdom is that recent investors in mutual funds are not very well informed, but by and large, they are doing a pretty good job of considering risk assessment and of considering their investment objections."

ICI used an independent polling agency to contact individuals across the country who had purchased shares of at least one long-term mutual fund in the past five years.

The profile of these mutual fund buyers: average age, 44; 58 percent are male; 61 percent are college educated; median household income of $63,300; household financial assets of $81,800; have owned funds for six years. The individuals also own three mutual funds on average.

Those characteristics are similar to all shareholders of mutual funds, the survey said.

But Mary A. Malgoire, principal of Bethesda-based Malgoire Drucker Inc., a financial planning firm, said that the survey doesn't necessarily take into consideration investors who are new investors and have sent the industry's sales skyrocketing.

"They were not the recent crowd," she said. "That is all way before this run up in the market. I think the experience of risk is different. People can say anything they want up until the market crashes.

"These aren't really young folks. It is not surprising to me that they would be a little more sophisticated."

The rub against mutual fund investors is that they are unsophisticated and don't read prospectuses -- the documents that the mutual fund companies send out to explain the performance and investment strategies of its various offerings.

But the survey found that 51 percent of the respondents said they were "very confident" in their ability to read material that they receive explaining a fund's risk. And 51 percent said they were "very confident" in their ability to use a bar graph to compare risks among funds.

The confidence level among this group of investors was high because 60 percent said they rely on financial advisers for help, such as full-service brokers, financial planners and bank representatives.

The survey also showed that 34 percent of them relied on family, friends and business associates for information on mutual funds, and 32 percent read the mutual fund company prospectus.

"What this says is that they are looking at these issues whether they are relying on the prospectus, a financial adviser or Cousin Joe," Mr. Stevens said.

What investors didn't have a handle on was understanding some of the more complicated ways to measure risk, like standard deviation.

Pub Date: 4/22/96

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