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Investors Worst Enemies? Themselves.

July 14, 2015

Dalbar, a financial services market research firm, annually conducts a study on investor returns and the behavior that drives them. It measures investors’ buying and selling of mutual funds, and the timing of those moves.


The results (pdf) are disappointing – investor behavior is consistently causing lower returns than funds’ performance reports state. 


And there’s hardly been any improvement in the last 20 years!

Why? Emotion.


Investors jump too often to realize gains, selling low and buying high. It’s the inverse of conventional wisdom, like a mutual fund merry-go-round! Last year, investors under-performed the S&P 500 by an average of 8.19%. The S&P gained 13.69% in 2014, whereas the average equity mutual fund investor return was 5.5%.


In 2014 the 20-year annualized S&P return was 9.22%, but investors only averaged 5.02% over that time, a gap of 4.2%. So most people are only getting about half of the benchmark return!

The bond situation is worse, where investor under-performance stands at 4.81% for 2014.


Investor returns averaged 1.16%, compared to 5.97% for a Barclays benchmark. Over 20 years, investors averaged a 0.8% return on bonds versus 6.2% for the benchmark – a whopping 5.4%!


Given the abundance of financial education out there, it’s surprising this is two decade phenomenon. Clearly, knowing what to do and actually doing it are distinct exercises.

Markets can fluctuate, as our not-too-distant meltdowns illustrate. But even in good markets, bad decisions abound. Poor timing and emotion are making investors their own worst enemies.


While easier said than done, investors must separate their money and emotions. Try consulting a financial professional. Having a third-party advisor is a great way to bring objectivity to your portfolio.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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