Timing and patience are the keys to boosting mutual-fund returns according to a new study from Morningstar Inc.

The Chicago investment research firm, which analyzed the returns for all U.S. stock funds with 10-year records, looked at the gap between the funds' official returns - that is, the returns an investor would have made if they had stayed in that fund for the entire period - and the funds' dollar-weighted returns over a 10-year period, a July 13 report from Dow Jones indicates.

Generally the returns earned by individual investors were worse than the funds' advertised return. The gap was smaller as investors held onto funds longer. The wider gaps reflected poor timing in buying and selling.

Investors are more likely to hold on to a fund with relatively stable returns because there are fewer "greed triggers," or reasons to pull money out of the fund if returns suddenly drop or add more money to the fund if the returns skyrocket, Dow Jones explained.

Another mistake investors make in timing their fund investments, the report noted, is to use the wrong benchmarks when comparing funds' returns. The gap in advertised and investor returns for small value funds, for example, was two percentage points even though the funds aren't that volatile. But many investors still tended to trade in and out of those funds because they were comparing their returns against those of the broader market and growth funds, which were posting strong gains in the late 1990s.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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