Dalbar 2020 Quantitative Analysis of Investor Behaviour Report tracks the performance of the average investor and shows how bad these type of investors time the market.
The average 1-year return of an equity fund investor for the period ending December 31, 2019, was 26.14%. But, the S&P 500 returned 31.49%. This means, 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. Each decade, the average equity fund investor underperformed the broader market by a wider and wider margin.
The average investor is terrible at determining when to enter and exit a position. Typically, they buy high and sell low. They allow emotions and mainstream media headlines to influence their action. But over time, these errors add up. The results are underachievement and mediocre returns.
Sven Franssen