From the May 2009 issue of Boomer Market Advisor • Subscribe!

May 1, 2009

Should you forgive your mutual fund?

And speaking of Morningstar, Michael Breen (the firm's Fund Spy) asks and answers a great question, one that also applies to advisors, financial firms, politicians, Jim Cramer, etc. Should you forgive your mutual fund (or in our case, should our clients forgive their mutual fund)? Honestly, what other choice do many boomer clients really have?

"In such an environment, you need to fight human nature," says Breen. "People tend to overemphasize what's happened lately and adjust their behavior based on it. Sociologists call this recency bias...The same forces apply to fund picks. Many top equity-fund managers have posted huge losses in the current bear market, while others have lost less. But that doesn't mean you should conduct a wholesale swap of the former for the latter. Mistakes were made and piles of capital were destroyed. But be leery of trying to win the last war. Just as it's not wise to chase performance into hot funds after they've had a big run-up, moving into more-moderate funds near the bottom of a trough could limit your returns in a rebound."

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