Media Predictions, Hype, and Track Records

We’ve all seen the ads on TV and in print for the “best” mutual funds to buy now, the “top 10 must own” investments for the year, etc. The authors of the articles associated with these ads present their oh-so-compelling cases as to why the XYZ mutual fund needs to be in your portfolio NOW. And if you track that fund’s inflows, you’ll see that invariably the fund’s assets do increase in value for a time, as herd investors pile into the media-hyped mutual fund.

Then time goes by, be it six months or a year, and a new “top 10 mutual fund” list appears. For some reason, the XYZ fund is no longer on that list, most likely because it has underperformed the new list of funds. Investors then begin selling XYZ at lower and lower share prices, as they switch to one of the new hot funds (at higher and higher prices). Here we have the classic example of how to lose wealth: buy high, sell low.

And who is promoting this cycle, often inadvertently? The financial media. Always remember that advertising is designed to sell a product (or service). Just because a personal finance magazine has an article titled “The Top Funds to Own Now” doesn’t mean buying those funds are in your best interests. The magazine is trying to sell magazines first and foremost, and having catchy cover titles is one of the best ways of selling more product.

If you must indulge yourself in personal finance media, read only for entertainment. Maybe you’ll catch a wise investment principle or two, if you’re lucky. But never read the media for specific advice for your situation. Instead, develop your own investment strategy (via your own research or with the help of a competent professional) that meets your specific needs.

If you think I’m wrong, look at the recommendation track records of the media source you’re following. You’ll be lucky if they share an honest evaluation of how their prior year’s picks performed, much less their track record over the last five years or longer. But you can bet the publisher is very proud of last year’s product sales related to the “best funds to own now” articles.

A word to the wise investor: buyer beware (of ads and articles).

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About Mike Wilson

Michael L. Wilson, MBA, CFP®, CRC®, is the owner of Integrity Financial Planning. Prior to founding Integrity in 1998, he worked for two years as a faculty member at the College for Financial Planning in Denver, training other financial advisors. Mike has 10 years of experience in the mutual fund industry, having worked with Fidelity Investments and Invesco Mutual Funds. He holds an MBA in Finance from Baylor University. Learn more about his work at www.integrityplanner.com.
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