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Featured Advisor

Ed Meek
CEO/Investment Advisor

Edge Portfolio Management


State: IL

At Edge, a low client to advisor ratio allows for personal and customized service for each individual.  Our goal is to work as a team for each client to provide not only portfolio management but wealth coordination and financial planning.  We make every effort to have frequent communication with our clients and to provide timely response to calls and emails.  I also enjoy spending time with my wife and three kids, playing and following basketball, playing golf, and participating as an advisory board member for Breakthrough Urban Ministries.

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Investors Weigh Factors in Selection of Plan Investment Choices

The importance of a fund's past performance

Retirement plan participants are using an average of five funds to invest their money, up from an average of three just a few years ago. What are the most important factors they consider before choosing which fund in which to invest?

Past performance tops the list, according to our research. Of factors that received a four or five on a five-point importance scale, a fund's past performance topped the list (81 percent), followed by the "riskiness of the fund" as explained in the plan provider's materials (75 percent). Fees and certainty of return were virtually the same (69 percent and 68 percent, respectively. Also of equal importance to respondents were ratings from an outside agency and the specific companies in which the funds invest (60 percent each). Ranked seventh was the fact that a fund was "designed for investors like you" (55 percent).

Asset allocations mutual funds invest in a mix of stocks, bonds, and cash. The three most familiar forms are Balance Funds (typically 60 percent stocks and 40 percent bonds), Life-Cycle Funds (also known as Target Date Funds), and Lifestyle Funds, which take their cue from an investor's risk tolerance. The primary reason plan participants are investing in more funds is to achieve greater diversification in their portfolios, said 37 percent of respondents.

When asked which one factor is most important in the selection of funds in which they will invest, most (34 percent) rank a fund's past performance, while 24 percent said they select a fund based on the certainty of return. Of less importance is the "riskiness" of the fund (14 percent), the fact that the fund was personally customized (11 percent), and specific companies in which the fund invests (8 percent). Of least importance to the respondents was a rating from an outside agency (4 percent).

Across gender, age and wealth levels, a fund's past performance is likely to be most important to men (39 percent vs. 30 percent of women), investors ages 35-49 (35 percent) and households with a balance of $100,000 and up.

Certainty of return is a factor most important to women (29 percent vs. 19 percent of men). Not surprisingly, it is also most important to the youngest investors ages 35 and under, and the least wealthy with a balance of less than $10,000 (30 percent).