AAII Readers Reveal How They Select Mutual Funds & ETFs


A mutual fund is an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. One of the main advantages of mutual funds and ETFs is they give investors access to professionally managed, diversified portfolios of equities, bonds and other securities.

AAII Weekly Survey Question

To understand what attracts AAII readers to mutual funds and exchange-traded funds (ETFS), we asked them the following:

What is your primary reason for investing in mutual funds or exchange-traded funds (ETFs)?

Here are the results as of 7 a.m. (Central) on January 23, 2017:

Out of the 2,026 readers who responded, 53% see the built-in diversification that comes with investing in mutual funds and ETFs as the primary reason for investing in them. This was the overwhelming choice, as the next three options were all clustered together at 11% to 13%. Lastly, 11% of the respondents said they do not invest at all in mutual funds or ETFs.

Weekly Special Question

Seeing that mutual funds and ETFs are so popular among AAII readers, we were curious to know how they go about selecting them for their own investment portfolios. So last week’s special question asked:

If you invest in mutual funds or ETFs, how do you go about choosing them?

In all, 282 readers provided responses. The answers clustered around either sources of ratings, research, etc. that are used to choose mutual funds, or the characteristics of the fund or ETF, such as past performance, fees, etc.

The factor cited the most by nearly 25% of out readers as a factor they consider when selecting a mutual fund or ETF is past performance. Coming in a close second, nearly 23% of respondents cited fees and costs as a major deciding factor when selecting a mutual fund or ETF.

Among providers of research, ratings, etc., Morningstar is the winner, as just over 13% of respondents say they using Morningstar research when choosing a mutual fund or ETF. AAII, with its annual mutual fund and ETF guides, Model Mutual Fund Portfolio and AAII founder Jim Cloonan’s new Level3 Passive ETF Portfolio, was mentioned by 11.3% of readers.

Here is a sampling of the responses:

  • “1. Look for funds with long-term results beating market 2. Look for low expenses 3. Look for low-turnover (unless it’s for a tax-advantaged account).”
  • “Actually, I start with the AAII annual mutual fund edition to look at five-year returns and expenses. Then I look further for holdings within those funds that interest me.”
  • “Cost is extremely important! I use Morningstar and other sources for in-depth analysis of how the mutual funds operate and their results.>
  • “I use James B. Cloonan’s ‘Investing at Level3.'”
  • “Good five to 10-year performance record, good management record, and low-cost fees. Buy the manager.”
  • “Has to be in an area that is difficult in which to buy individual stocks.”
  • “Low cost. Low cost. Low cost.”

Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at http://www.aaii.com/memberquestion.


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