Statistical returns of various investments can be very misleading. The behavior of an investor has a dramatic effect on his or her actual returns.
It is not uncommon for investment advertisements to tout their investment returns. Some of these returns look very attractive. However, the advertised returns generally have no relationship to what individual investors actually earn in that investment.
An analysis of when investors contribute and withdraw money from investments sheds a startling light on actual returns.
- Over the past 30 years, the average equity investor trailed the broad equity market by more than 6.5% annually, as of the end of 2015.
- In 2015, the average equity investor trailed the broad equity market by more than 3.5%.
How can this be? Here is what we know through DALBAR, an independent research company:
- The average investor earns less—in many cases, much less—than mutual-fund performance reports suggest.
- Investment results are more dependent on investor behavior than on investment-manager behavior.
- Investors who hold on to their investments have been more successful than those who try to time the market.
- Attempts to correct irrational investor behavior through education have proved to be futile.
Be careful. Your investment success will depend on employing a prudent investment process and working with a professional you are comfortable with. Choose wisely, and stay the course.
For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.