Thursday, September 9, 2010

Should Management Age Be A Factor In Buying A Mutual Fund?

It's not nice to discriminate and it can be an outright bad move when it comes to managing your money, but I've been seeing some articles that got me thinking. The first is from Fidelity by way of Yahoo! Finance and it's titled Do Financial Decisions Get Better With Age?.

Basically what it says is that, financially speaking, it's all over after 53. That's the pinnacle of financial decision making according to a study called "The Age of Reason: Financial Decisions Over the Life-Cycle with Implications for Regulation."

Here's an excerpt:

"...our ability to make sound financial decisions increases sharply in our 20s and 30s, levels off and peaks in our 50s, then begins to fall sharply in our 70s and 80s — the so called "inverted U". The learning curve associated with gaining financial knowledge is believed to be the reason for the rise in our early years, while declining cognitive function is believed to be the reason for the drop in our later years."

OK, so we make poor decisions when we get older. So much for wisdom coming with age, but it does explain why seniors are so heavily targeted in financial and investment scams.

But then I saw this article form Morningstar that touts the record of the Dodge & Cox fund family. The article praises the fund family for it's wealth of management wisdom, focus on the team and willingness to go against the grain, but what stood out to me is in the 2nd paragraph:

"John Gunn, 66, who replaced the retiring Harry Hagey as chairman in 2007, will become chairman emeritus March 31, 2011. Ken Olivier, 58, who has been with the firm for more than three decades and was named CEO in March 2010, will succeed Gunn. At that time, fixed-income director and executive vice president Dana M. Emery, 48, and CIO and senior vice president Charles F. Pohl, 52, will become co-presidents."

Only 2 in that list are under the supposedly critical age highlighted in "The Age of Reason: Financial Decisions Over the Life-Cycle with Implications for Regulation" - and one of them (Charles F. Pohl) is only a year away!

Now, I don't mean to imply that investors should avoid Dodge & Cox funds because the company's management is well seasoned, but it does make me wonder if age should be a factor in determining whether to invest in a mutual fund.


Anonymous said...

I am not trying to put down your post and I think that thinking about these things and applying them is cool. Most people do not even know who is managing their mutual fund.

I read the article and do want to clairify something. "Basically what it says is that, financially speaking, it's all over after 53." I do not see anywhere in that article where it implies this....

It is an "inverted U" not an "inverted V". The study says steep drops in your 70s and 80s. That is a long way from 53... 17 years....

Interesting post! Keep writing/thinking!!

Mike said...

Thank you very much for the thoughtful comment. You are indeed a shrewd net denizen and you caught me. I hope you won't begrudge me a little hyperbole deployed in the spirit of creative license ;-)

In all seriousness, I think the matter is really a question of how long that plateau of the inverted U lasts. It may be a steep drop in one's 70's, but it may also be a steady drop through the 60's... anyway, food for thought.

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