Capital Ideas

You've probably read that investors usually don't do as well as the mutual funds they buy. The reason is simple. You buy, or add to, successful funds after they've started zooming in value, not before. You sell during mediocre years, before the fund picks up again. On a buy-and-hold basis, the fund's past performance could be fine. But because of the way you timed your investments, you might show a loss.

—How badly do investors fall behind? You can find out at Morningstar.com, which recently started keeping track of average investor returns. Go to Morningstar's home page and enter the name of a fund in the "Quotes" box. When the fund page comes up, click on "Total Returns" to get its performance record. You'll then see a tab for "Investor Returns." Click there to find out how well (or poorly) typical investors did. They're more successful in some funds than others.

—Where do investors fare the worst? In volatile funds where prices zoom and dip. One example would be the technology sector. Those funds grew at an annual 6.4 percent over the past 10 years while their average investor was losing4.2 percent. The same thing happened in communications funds, health-care funds and growth funds. The RS Emerging Growth Fund gained 10.04 percent a year over the past 10 years. Its typical investor lost 6.96 percent.

—Where do investors fare the best? In conservative funds, where returns are steadier. This group includes the giant, well-diversified stock funds, as well as funds that buy both stocks and bonds. T. Rowe Price Equity Income, for example, clocked 10-year returns of 10.52 percent. Its typical investor did almost as well at 10.13 percent.

—What's the lesson? If you seek the thrill of risky funds, you have to stick with them during their poor years, too, if you hope to make money, says Russel Kinnel of Morningstar. If experience shows that you'll sell too soon, buy the conservative funds. You're more likely to hang in there and to get superior returns.

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