Chasing Hot Funds Translates to Diminished Returns, Study Finds

Performance-chasers beware: By the time you get into a hot fund, it's usually too late. In fact, bad timing can diminish your returns by as much as 20%, according to a new study by Financial Research Corporation.

Buying into funds at their high and selling off at lower levels low caused the average mutual fund investor to miss about 20% of a fund's gains over the past decade, according to an FRC study commissioned by Phoenix Investment Partners. And it appears that this kind of fund-hopping is on the rise: FRC also found a dramatic decline in the average holding period for funds. The average fund holding period is now 2.9 years, down from 5.5 years in 1996, according to FRC.

The pursuit of hot mutual fund money is a "disturbing trend" that has "detrimental effects on the long-term financial health of the investing public," says Gavin Quill, director of research studies at FRC and author of the report. ...