Why You Shouldn’t Pick a Mutual Fund by Its Name

It’s all in the name, until it’s not. 

Imagine you’re looking to invest and see a fund labeled with a reassuring word like ‘Preservation.’ Sounds safe, right? Who wouldn’t want to preserve their wealth when markets feel unpredictable? So, you choose that fund and move on, trusting that the name reflects a cautious approach. 

But sometimes, names can be more marketing than meaning. 

The ‘Preservation’ Fund That Wasn’t

In early 2018, thousands of investors put their trust and savings into the LJM Preservation and Growth Fund (LJMAXX). The name suggested stability and steady growth. In reality, it did the opposite. 

When market volatility spiked in February 2018, the fund’s value dropped nearly 80% in just two days, falling from $9.67 to $1.94 per share. Multiple reports confirmed that the collapse stemmed from the fund’s use of complex options strategies tied to S&P 500 futures. Specifically, the fund sold naked put options, a leveraged position that can expose investors to steep losses when markets move sharply lower. 

This detail was not immediately apparent to many everyday investors who selected the fund based on its name. 

(Sources: Steady Options, InvestorLawyers.net)

Why Mutual Fund Names Can Be Misleading

Fund names are designed to attract attention. Words like preservation, growth, or balanced suggest stability, but they don’t guarantee it. 

Under U.S. regulations, funds can use descriptive terms as long as at least 80 percent of assets generally align with the stated focus. That leaves plenty of room for interpretation. 

In practice, that means: 

• • A ‘preservation’ fund might take on significant leverage. 
  • A ‘growth’ fund might include volatile sectors. 
  • A ‘balanced’ fund might still swing with the market. 

This marketing-driven naming can mislead investors into assuming lower risk than actually exists. 

For more on how fund selection fits within your broader investment plan, explore our investing resources. 

The Real Way to Evaluate a Fund

When selecting mutual funds, don’t stop at the name. Look at: 

• • Holdings: What’s actually inside the portfolio?
  • Strategy: How does the fund generate returns, through income, growth, or derivatives? 
  • Risk metrics: Risk management tools like standard deviation or drawdown history show how a fund performs during market fluctuations. 
  • Management: Who runs the fund, and what is their track record?

If you’re working with a Wealth Manager, they can help you look ‘under the hood’ and translate the fine print language so you know exactly what you own. 

Why This Matters for Long-Term Investors

Picking a fund by name alone might feel simple, but it’s rarely strategic. You’ve worked hard to build your savings, and every dollar deserves thoughtful oversight. A well-named fund can still expose you to unexpected losses if you’re not clear on what drives its returns. 

That’s where informed guidance makes a difference. At The Retirement Planning Group, our advisors evaluate every fund we recommend, analyze holdings, risk exposure, and investment latitude to ensure the name matches the strategy. 

Key Takeaway

A familiar or comforting word in a mutual fund name doesn’t make it safe. Good investment means understanding what’s inside, not just what it’s called. 

If you’d like a quick review of your portfolio to make sure your funds match your goals, schedule a 10-minute guidance call with our team.