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Investors are Still Failing

9 years ago, I wrote about Disappointing Returns, the fact that for the 20 years ending Dec. 31, 2006, the average stock fund investor earned a paltry 4.3 average annual compounded return compared to 11.8 percent for the Standard & Poor’s 500 index. I went on to note that in these 20 years, $10,000 in the S&P would increase to $93,075. Investing in a low cost (I use a cost of .18% for this math) fund would yield $90,124. But the average investor has seen his $10K grow to only $42,478. Interesting, back then I looked at .18% as low cost. Today it’s easy to find index funds at .05% or better.

Nearly a decade later and I’m reading the latest report from Dalbar, the same research firm who report led me to my article in 2007. From their introduction – “Since 1994, DALBAR’s Quantitative Analysis of Investor Behavior (QAIB) has measured the effects of investor decisions to buy, sell and switch into and out of mutual funds over short and long-term timeframes. The results consistently show that the average investor earns less – in many cases, much less – than mutual fund performance reports would suggest.”


Let’s have a look at the latest data – the last ten years have improved a bit. A 4.23% return vs the S&P 7.31%. The financial blogging community has often written about fees, and the effect a 1% annual fee in a 401(k) has an awful impact to one’s wealth after decades of this fee. But, if the lag from the S&P to the investor’s pocket were only 1%,  I wouldn’t be writing this today. You can see the numbers for the last 30 years, 3.66% for the average equity fund investor vs 10.35% for the S&P. $10,000 invested at this average return would be worth $29,399 vs $189,350. We can’t blame this on the fees, not all of it, anyway. To paraphrase Cassius from Shakespeare’s Caesar, “The fault, dear investor, is not in the fees, but in our own behavior.” We buy high, and sell low.

I’ve taken a break from writing these past months. I’m heading to my 6th annual FinCon conference tomorrow, and planning to get back to the keyboard on my return.

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