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Ill-timed investments continue to cost fund investors, says Morningstar


Investors cost themselves between 0.74 per cent and 1.32 per cent per year by mistiming their purchases and sales of equity and bond funds during the 10-year period through 31 December, 2015, according to to research by Morningstar.

The company’s annual study of investor returns, which measure how the average investor fared in a fund, uses the Morningstar Investor Return, a dollar-weighted return that incorporates the effect of cash inflows and outflows from purchases and sales as well as the increase in a fund's assets. 

"Investors tend to buy high and sell low, missing out on a fund's gains in value. Our investor returns data has shown that investing decisions made a decade ago have an impact that compounds powerfully over time," says Russel Kinnel, chair of Morningstar's North America ratings committee and editor of Morningstar FundInvestorSM. "Though investor return figures have somewhat improved year over year, the latest data shows that investors still face challenges in using mutual funds correctly."

In the study, Morningstar evaluated US open-end mutual funds and calculated average asset-weighted investor returns and average total fund returns. Morningstar also tested four factors and their effect on investor returns: Morningstar Stewardship Grade, standard deviation, tracking error, and expense ratio.

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