The latest report from DALBAR reveals the harsh reality about the actual returns stock market investors have been getting for the last 30 years.
Would it surprise you to know that many investors haven’t even been able to keep up with inflation for the last three decades?
Many investors haven’t, according to the 2016 Quantitative Analysis of Investor Behavior.
Here are the facts about actual long-term investor returns
The average investor in asset allocation mutual funds (which spread your money among a variety of classes) earned only 1.65% per year over the last three decades!
These investors didn’t even come close to beating inflation, which averaged 2.6% per year.
The average investor in equity mutual funds averaged only 3.66% per year – beating inflation by only 1% per year. (Was that worth the roller-coaster ride and sleepless nights?)
And the news just gets worse: The 3.66% return investors in equity funds got over the last 30 years was about two thirds less than the return of the S&P 500 index over that period!
Pity those who invested in fixed-income funds. They only managed to eke out a .59% annual return, significantly trailing inflation and getting only a tiny fraction of the return of the corresponding benchmark.
Of course, if you’re investing in a tax-deferred account like a 401(k), IRA, or 403(b), you’re also paying hefty fees, AND 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 eke out.
All of which makes it abundantly clear that if you have much of your hard-earned savings invested in the market, you’re only fooling yourself if you believe you are growing real wealth in the Wall Street Casino, when the reality is that you may be digging yourself deeper and deeper into a hole you may never be able to climb out of.
The Conclusion of This New Report is That…
The results consistently show that the average investor earns less – in many cases, much less – than mutual fund performance reports would suggest.”
After decades of analyzing investor behavior in good times and bad, DALBAR concludes that, “Investor behavior is not simply buying and selling at the wrong time, it is the psychological traps, triggers and misconceptions that cause investors to act irrationally.”
Among those psychological traps and triggers, they cite:
- Loss Aversion – expecting to find high returns with low risk (yeah – and I’ve got a gold Rolex watch I’ll sell you for $10…)
- Optimism – belief that good things happen to you and bad things happen to others
- “Herding” – copying the behavior of others even in the face of unfavorable outcomes
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You sure are quiet when the market is up…lol.
And you’re sure quiet when the market is down, aren’t you? Besides that, the Dalbar study takes into account ALL of the market ups and downs over the past 30 years…and investor returns STILL suck. In fact, during the latest bull market, they’ve actually DECLINED!
You’d know that if you could read the report without coloring it with your protective armor. But I get it – you don’t want your investment clients to know about this, so you’ll do whatever you can to cloud the facts and the issues.
Oh wait! We banned you from posting on this blog! But you just can’t seem to stay away. That means we’re doing something right. However, it’s gonna be a long time before we post another one of your silly comments.
What do you make of Kitces’ behavior gap post? The claim is basically that DALBAR overstates the behavior gap and poor returns of investors due to how they calculate those returns.
I think that DALBAR has done a great job of addressing this question/objection and others in this piece they did about Answering Fiction about Investor Returns with Facts.
I’ve always thought it is very interesting that when the Bank On Yourself Advisors ask their clients what kind of return they have been getting in the market, and then have them get their statements out, so they can run the ACTUAL numbers, they find investors WAY overstate their returns. All too often, they have little to show for years of investing in the market, other than what they contributed,
And if they are investing in a tax-deferred account, when the IRS comes calling they will find they have actually dug themselves into a hole. But it will be too late for them then.
I have a client who called his company with me there. the rep told him that his mutual funds returned 11% last year. I told him to ask about his “actual return” and they told him that this his actual return. Was hard to beat after that.
It’s not about what happens in any given year- it’s about the long-term results… which, in reality, have been terrible (barely beating inflation for the luckiest investors), as the DALBAR studies consistently show.