Wednesday, May 5, 2010

Investors' Average Equity Returns Over the Past 20 Years.

Mutual fund firms love to quote plush returns for their prospects. Of course, usually these returns do not include expenses and costs, which dramatically lower the return, especially for actively managed funds. Don't you ever wonder, if, and how many people actually earn those tasty returns?

If there is anything that will give us insight as to what the returns were for the average investor, it is the Dalbar study of QAIB (Quantative Analysis on Investment Behavior) for 2010. The research compiles results of investor's actual returns in equity, fixed income, and asset allocation funds.

What the results showed was quite disheartening. For the 20-year period dating back to 1990, the average equity investor garnered a weak 3.17% annualized return. Contrasted with the S&P 500 achieving a 8.20% return over the same time frame.

Why aren't investors achieving higher returns? The 3.17% average equity return highlights investors' lack of investment discipline. Why don't they buy and hold? Simple, because they are impatient.

A 20-year analysis displays that equity investors only retained their mutual fund holdings for an average of 3.22 years. Investors' time horizons are long-term, so why don't their holdings show this? Easy, investors tend to fixate on the present moment instead of the future.

During uncertain markets, investors flee equities - panicking. Fleeing equities and evacuating your long-term goals will certainly hinder your performance and ultimately effect the achievement of your goals. Short-term market movements lead to emotional mistakes that must be avoided in order to reach your expectations, rather staying disciplined and focused on the future will result in satisfactory results.

Which group were you in? We'd be glad to take a second look at your current financial position to make sure you aren't receiving sub-par investment solutions.

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