For example, ads for many PEPs broadcast glittering growth figures, hoping we will be enticed by the sweet smell of success. The results are obvious. "A lot of small investors just look at the top-performing fund and go for that," says Ian Millward, investment marketing director at independent financial advisers Chase de Vere. Is this the right thing to do? "If you just do that then it's absolutely crazy. A lot of top funds have taken big risks to get there," he says.
John Spiers, investment director at IFA and stockbroker BESt Investments, says a fund's historical record may be of no relevance because it might be under different management or have changed in size.
Personalities behind the money play a vital role. Prolific Technology, an international growth unit trust, has come first in three-, five- and 10-year performance league tables. But Mr Spiers says it has had at least three changes of management in the past five years. In this instance at least, past performance on its own is almost irrelevant as a way of assessing the future.
Similarly, confidence in investment guru Jim Slater has helped propel interest in Johnson Fry's Slater Growth Fund, run by Mr Slater's son, Mark, who follows his father's techniques. In the late Sixties, Jim Slater became so influential in the markets that he triggered a number of sharp falls on the stock market when he announced he was switching to cash.
The Johnson Fry Slater Growth Fund had assets of around pounds 500,000 a year ago but now has around pounds 33m under management, and has grown 54.96 per cent in the past 12 months.
But Mr Spiers warns: "If they achieved their outperformance when they were very small, their techniques may not work with a big fund."
Past performance figures can givevital information provided a fund's management is consistent, says Roger Adams, executive director of investment trusts at SBC Warburg. But successful fund managers can retain their job title but in practice be drawn away from decision-making.
Then there is the question of performance tables themselves. The most common is the cumulative performance table. This shows the development of an investment over one, three and five years, with income re-invested. Cumulative performance tables are of use only when weeding out really bad performers, Mr Spiers says. "We would break it down into discrete periods showing each year in a five-year period." Ideally, a fund would beat its benchmark in every one of those five years.
Try to look for funds run by companies which have demonstrated good performance across a wide range of sectors, Mr Millward says. Find out what the fund's philosophy and risk profile are and make sure you are happy with them.
Volatility is one way to assess risk. And measuring risk is complex, and often subjective. An emerging markets fund is generally seen as riskier than a UK gilts fund, but other factors come into it, which is where a broker or financial adviser can help.
You are usually advised to hold an investment in a fund for a few years. But keep your eyes peeled for changes.
Some funds change their investment objectives. M&G is considering changing the remits of four equity funds to offer a broader range of funds. M&G says income levels are not going to be affected negatively.
Small investors can in theory do their own research, though they need a lot of time and access to specialist financial information. But help is at hand. Some companies publish their own guides:
Chase de Vere PEPGUIDE - Chase de Vere Investments plc, 63 Lincoln's Inn Fields, London WC2A 3JX. Phone 0800 526 092 (pounds 12.95)
BESt Investment's Personal Equity Plan Recommendations - BESt Investment Brokers, 20 Masons Yard, Duke Street, St James's, London SW1Y 6BU. Phone 0171 321 0100
Private Investor Guide, co Jane Bexley, Investment Trust Department, SBG Warburg, 1 Finsbury Avenue, London EC2M 2PP (pounds 15)Reuse content