Dalbar, a research firm, says most investors don't know how to invest. (1) Highlights of this year's study include:
- Investors don't do as well as the market; in fact, they do 4.20% worse per year.
- Another way to say that is, the 20 year average return earned by investors for an equity fund was 5.02% compared to 9.22% for the S&P 500.
- Another way to say that is that had the investing public not done anything, they would have done 80% better than the 5% they earned.
- The primary reason is market timing.
- This is a consistent trend; under any other measured period (10 year, 5 year, 3 year and 1 year).
- Attempts to change this trend through consumer education are futile.
Perhaps the best advice your financial advisor may give you is to do nothing at all. Indeed, from our perspective, the greatest value we deliver is the one that eliminates or minimizes the "behavior gap" between doing nothing and giving up what could be 80% of the gains.
On the other hand, a Wall Street Journal editor, Jason Zweig, says Dalbar has it wrong (or at least exaggerates how dumb we are):