Many investors and for that matter many Financial Advisors don't understand what they are actually investing in when they pick a particular investment fund. Many unsuspecting investors look at the name of the fund, do a quick glance at the historical performance and hit the "buy" button without fully vetting what the fund is actually invested in. For many investors the process I just laid out is what they call "research", but in truth it's nothing more than window shopping.
Take a look at the chart below of a fund that claims to be a "Low Volatility" fund...meaning, the goal of this fund is to be LESS risky than the market. This didn't work out so well for this fund and its investors. This particular fund has been actually MORE risky.
Deep due diligence is required of all investments that are under consideration to be put into a portfolio to adequately understand the risks and the potential returns. Looking beyond the name of the investment is just the first step.
Paul R. Rossi, CFA