Analysts advise investors to stick to their strategy and not change funds during periods of poor performance because this usually destroys valueWhen returns are low, the temptation to switch between unit trust funds is much stronger. But these switches often lead to poorer, rather than improved, performance, data from one of the larger unit trust fund platforms shows.
But easy switching seems to have destroyed value for many investors. Momentum found that one in two of 17,600 investors who used its platform in the decade to 2018 switched funds during periods of poor performance but would have earned 1.1% a year more — or 11% over 10 years — if they had stuck with the funds they initially picked.
Marais says this proves that investors are often not rewarded for attempting to pick what they believe will be well-performing funds. Marais says Momentum is already doing this for retirement funds where its CPI + 6% portfolio has had an 84% success rate in achieving CPI + 6% over rolling seven-year periods since 2008.
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