jump to navigation

Latest Dalbar, Inc. Study Out April 29, 2014

Posted by shaferfinancial in Finance.
Tags: , ,

Couple of interesting points from the study of investor behavior.
This study annually looks at inputs and outputs in mutual funds and calculates an average investor return. It lets us know how actual investors really do investing in mutual funds. Each year they highlight a theme as the data is generally about the same from year to year.

First the results:

The average investor returns for the last 20 years was 5.02% for those invested in equity funds and 2.53% in asset allocation funds. This compares to the return of 9.22% from the S&P 500. Or an underperformance of 4.2% and 6.69% over the last 20 years. The gap actually increased in 2013 a very unusual occurrence in a year of a major positive stock market movement. Usually the upward trend attracts people investing. What that means is a larger group of investors missed the 2013 rally in equities.

They also listed the average investor returns going back to their first study 20 years ago. This includes data from 1984 on. While the S&P 500 averaged 11.11% over that time the average investor only averaged 3.69%! That might represent the proliferation of index funds over the last 20 years, which kept investors from moving from 1 hot fund to another. I guess you can look at this as a victory for investors.

Retention rates or how long an investor holds a mutual fund before selling moved up over 4 years compared to the average over the last 20 years of 3.3 years. In a strongly positive market like we have seen for 5 years now one would expect folks to hold for longer period of times.

Interesting point #1
Several pages of the study is relegated to timing of the buys and sells, what they call the guess right ratio. I think it assumes that folks are only reacting to the market movement. But, more likely is that they are also reacting to individual circumstances, like job losses, family issues, needs like purchasing a house or emergency cash needs. Regardless, this points out that the real issue is that people tend to sell low and buy high.

Interesting point #2
They, for the first time, admit that investor education is a failure. Despite years of increasing investor education, individual investors are still behaving the same way, panicking in down markets, buying after the market has had marked increases. They go on to say that there are two goals in tension for individuals; capital preservation and asset growth. Their cure for this is to downsize expectations. They think by downsizing expectations, investors will not be so quick to panic nor to buy into an overpriced market. I think that is a bunch of malarkey. Our brains are hardwired to react the way these investors do. No amount of downsizing expectations will change that.

Gee, to bad there is not a vehicle that preserves capital and also gives solid returns? That would be ideal. Wait……….maybe there is………………..

Maybe the insurance industry has provided us we a couple????????
Perhaps EIULs????
Fixed Index Annuities?????

No…..just downsize your expectations 🙂



1. jeff lamkins - May 16, 2014

Good recap of the study….I just wish your spelling/grammar was a little better. You must be a numbers guy;)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: