Four Stats Your Broker Doesn't Want You to Know

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Four Stats Your Broker Doesn't Want You to Know

Dalbar’s Key Findings

Recently I was looking at the key findings of Dalbar’s Quantitative Analysis of Investor Behavior (QAIB) report for 2015, and a few things caught my attention. Since 1994 the QAIB has measured the effects of investor decisions to buy, sell, and switch into and out of mutual funds over short and long-term time frames. The results have consistently shown the average investor earns less- in many cases, much less- than mutual fund performance reports would suggest. The QAIB 2015 was no different.

Here are four crucial points I want to share with you from the report:

  • In 2014, the average equity mutual fund investor underperformed the S&P 500 by a wide margin of 8.19%. The broader market return was more than double the average equity mutual fund investor’s return (13.69% vs. 5.50%).
  • In 2014, the average fixed income mutual fund investor underperformed the Barclay’s Aggregate Bond Index by a margin of 4.81%. The broader bond market returned over five times that of the average fixed income mutual fund investor (5.97% vs. 1.16%).
  • In 2014, the 20-year annualized S&P return was 9.85% while the 20-year annualized return for the average equity mutual fund investor was one 5.19%, a gap of 4.66%.
  • In 8 out of 12 months, investors guessed right about the market direction the following month. Despite “guessing right” 67% of the time in 2014, the average mutual fund investor was not able to come close to beating the market based on the actual volume of buying and seeing at the right times.

What this report is telling us is most investors cannot beat the broader markets. It shows us many investors are taking unnecessary risks for average results. The fact is these returns can be obtained in non-risk vehicles.

 

Bottom line is this: if an investor can get the same return without any, or minimal risk, then why take it?

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