The study shows that investors understand risk to be an important factor in making investment decisions, that they typically view investment risk from a long-term perspective of six to 10 years, and that they would prefer to learn about the risks of a particular fund through a graph showing the variability of the fund's historical performance together with a straightforward narrative description. The results offer a detailed picture of what a representative sample of recent investors would like to see in fund documentation to help them gauge investment risk. While concepts of investment risk differ among recent investors, the study showed most prefer a narrative form of risk disclosure and a graphic presentation consisting of a bar chart showing historical annual return. The Institute submitted the study's findings to the U.S. Securities and Exchange Commission earlier this month in response to the SEC's request for comments regarding the issue of risk disclosure from the professional investment community and individual mutual fund investors. Sixty-nine percent of respondents examined a fund's investment risk before making their most recent purchases.
Investors find narrative disclosure useful to their evaluation of risk.
Fifty-one percent said they are very confident of their ability to use narrative description to assess a single fund's risk. Investors also find graphic presentation to be helpful. Quantitative risk measurements would complicate an evaluation of mutual fund risk for most investors. Most investors, including those who have used quantitative risk measures, are not very confident of their ability to use these methods. The survey indicates that quantitative risk measures have a strong potential to confuse or mislead investors.