Dalbar’s 2020 Quantitative Analysis of Investor Behavior report tracks the performance of the average investor. The report shows that the average 1-year return of an equity fund investor for the period ending December 31, 2019, was 26.14%. Over the same period, the S&P 500 returned 31.49%. In other words, the average investor’s return was 17% lower than the S&P 500’s.
After 10 years, the average return of an equity fund investor was 9.43%. After 20 years, it dropped to 4.25%. After 30 years, the average return of an equity fund investor was only 5.04% – less than half of the market’s total return.
In fact, each decade, the average equity fund investor underperformed the broader market by a wider and wider margin.
The conclusion: The average investor is terrible at determining when to enter and exit a position. They buy high and sell low. They allow emotions, mindset and the latest mainstream media headlines to determine their next action. And over time, those errors add up and lead the average investor to a life of mediocre returns that underperform simple stock indices significantly.
Sven Franssen