Wednesday, January 8, 2014

Average Investor Returns: They Are Horrible!

The following chart was recently published by Bob Doll at Nuveen:

Doll attributes the failure of the average investor to keep up with investment markets (or even inflation, for that matter) to market timing and emotionally driven decisions to move into and out of the market.

How long has it been supposedly common knowledge that investors are better off choosing an investment strategy that represents their risk tolerance and sticking to it both in the good times and bad? Still, this data illustrates that investors are terrible at sticking to their strategy when markets stall, and still have an overwhelming urge to buy after the market has already done well and sell shortly after a market drop (i.e. buy high and sell low).

Again, having a defined, documented investment strategy can help you avoid the types of behavior that cause other investors to significantly under-perform the market. This is were having a written financial plan can be invaluable. Additionally, working with a financial advisor with a history of executing a steady, buy-and-hold approach can provide important support in avoiding detrimental behaviors during the rough times.



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