Dalbar 2014 QAIB Report Reveals the Truth About Investor Returns

I’m holding in my hands a hot-off-the-press Report from the well-respected research firm, DALBAR, Inc., about the actual returns investors have been getting in the stock market over the last 30 years. And it ain’t pretty…hot off the presses

The average investor in asset allocation mutual funds (which spread your money in a blend of equities and fixed-income funds) earned only 1.85% per year over the last 30 years!

These investors didn’t even come close to beating inflation, which averaged 2.8% per year.

The average investor in equity mutual funds averaged only 3.69% per year – beating inflation by less than 1% per year. (Was that worth the roller-coaster ride and sleepless nights?)

And the news just gets worse: The 3.69% return investors in equity funds got over the last 30 years was two thirds less than the return of the S&P index over that period!

Pity those who invested in fixed-income funds. They only managed to eke out a .70% annual return, significantly trailing inflation and getting only a small fraction of the return of the corresponding benchmark.

And if you’re investing in a tax-deferred account like a 401(k), IRA, or 403(b), you’ll have to pay taxes when you start taking income. And that can easily wipe out another 30-50% of the meager returns you managed to get.

All of which makes it clear that investors are only fooling themselves if they believe they are growing real wealth in the Wall Street Casino, when the reality is that they are digging themselves deeper and deeper into a hole they may never be able to climb out of.Wall-Street-Casino

[Investor returns continue to drop, as this article about the latest Dalbar results reveals.]

Just who is the “average investor”? The Dalbar 2014 Quantitative Analysis of Investor Behavior states “average investor” refers to “the universe of all mutual fund investors whose actions and financial results are restated to represent a single investor.” This universe would include small and large investors as well as professionally advised and self-advised investors.

Here Are More Shocking Facts from the Report…

  • “Attempts to correct irrational investor behavior through education have proved to be futile. The belief that investors will make prudent decisions after education and disclosure has been totally discredited
  • “The gap between the 20-year S&P 500 return and the average equity fund investor return expanded in 2013”
  • “The greatest losses occur after a market decline. Investors tend to sell after experiencing a paper loss and start investing only after the markets have recovered their value. The devastating result of this behavior is participation in the downside while being out of the market during the rise”
  • “Risk tolerance is subject to many variations and must be monitored regularly to keep investments aligned. Changes in risk tolerance make any attempts at automatic rebalancing futile at best and may result in unnecessary losses”

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  1. Did DALBAR calculated the fees that the mutual company will charge investors on those figures? Or do we need to substract the fees from the 1.85% and 3.69%?

    • The fees charged by the mutual fund companies have already been accounted for. However, I don’t believe that additional fees charged by 401(k) or IRA administrators are.

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