Most investors have failed by a long shot to achieve market rates of return. Based on the Dalbar Study, the average investor has failed significantly to achieve market returns. While the S&P 500 has earned 7.68%
the last 20 years ending 2016 the average mutual fund investor has earned 4.79% during this same period.
This is a stunning failure. Research shows the average actively managed mutual fund underperforms the market by two to three percent per year. Accepting this fact, the investor’s job of allocating assets is greatly simplified.
The investor only needs to allocate his/her assets into various asset categories to achieve market returns and remain disciplined over long periods of time.
This is easier said than done and most often requires the aid of a coach. By focusing on market returns, there is no stock picking at all. No forecast, no prediction. There is no gambling on beating the market. You just own every single stock in that asset category. That’s what we talk about when we refer to market rates of return.
Remember it’s not about picking the “best funds” rather it’s about maintaining a disciplined approach.
Investing success requires owning
The Wall Street bullies continue to lure investors with the ‘hot’ managers sterling performance. These investors then buy and in most cases are disappointed with the results.
We investors have been convinced that someone out there can beat the market. They have been convinced that someone can help them avoid losses and only participate in the gains.
These investors are looking for stock market returns with Treasury bill risk. What the Dalbar study shows us is that they end up with Treasury bill returns and stock market risk.
Stop the madness. Although it has been proven people are more motivated by the pain of losing than they are with the pleasure of gains. We need to focus on market returns and avoid listening to short term noise. Without downturns there would be no or lower returns.
The markets reward the taking of risk. Accept this and allow your investor coach to guide you through the turbulence.
Always remember the markets are random and unpredictable.