Financial experts don't make smart investments: Study

Financial experts do not make higher returns on their own investments than untrained investors, according to a first study of its kind done by a Michigan State University business scholar.

The managers were surprisingly unsuccessful at outperforming non-professional investors, revealed a study of the private portfolios of mutual fund managers.

"Our findings suggest average investors might be better served to handle their own portfolios rather than pay the often-high fees charged by mutual fund managers," said Andrei Simonov, associate professor of finance, Michigan State University, US.

"The point is you have these very educated people who are supposed to know what they are doing, but they are just not that good, on average," explained Simonov.

Simonov along with Andriy Bodnaruk of University of Notre Dame, US, compared the portfolios of 84 mutual fund managers in Sweden against the portfolios of untrained investors who had similar incomes and backgrounds.

The inability of financial experts to make better investment decisions than their untrained peers is likely due to a lack of talent and the fact that succeeding in the mutual fund market is an extremely difficult task, pointed our Simonov.

"I am not disputing that there is a very small fraction of managers who are extremely talented," noted Simonov.

But there are very, very few of these superstars, and the average investor probably can't afford to invest with them anyway, said Simonov.

The study appeared in the Journal of Financial Intermediation.