Lately we’ve finally seen some positive financial news: The U.S. economy is on the rise. If some recent mutual fund advertising is to be believed, the economy is, in fact, skyrocketing.
Don’t necessarily believe what you read. These ads tout great short-term gains while relegating the less spectacular one-year and longer returns to the fine print. Although highlighting the good and hiding the not-so-good was a common advertising strategy during the boom years, not many investor advocates are happy to see it reemerge. They say it’s a potentially deceptive practice that, at the very least, creates confusion. The Securities and Exchange Commission, in fact, responded to the new wave of ads by adopting rules that force fund managers to offer information on the most recent month’s performance, as well as cautionary statements in the advertisements themselves.
“I’m concerned that if people see this kind of advertising, they’ll fall into the same traps they did three or four years ago,” says Wendy Spencer, a certified financial planner at Spencer Capital Strategies. “I think it can be very misleading.”
Spencer offers some tips for investors who are interested in a fund that advertises big returns. First, go to the fund’s website (or a reputable news source like The Wall Street Journal) and check out its five-year return to get a broader, more accurate picture of the fund’s profitability and stability. Research the stocks the fund buys to make sure they match your needs. And finally, compare the fund to a related index to see that it's meeting or beating typical returns. You’ll probably find that if something seems too good to be true, it is.