Most investors have failed by a long shot to achieve market rates of return. Based on the Dalbar Study for calendar year 2017, the average investor has failed significantly to achieve market returns. While the S&P 500 has earned 7.20% over the last 20 years the average mutual fund investor has earned 5.29% with inflation of 2.15%..
This is a stunning failure. Research shows the average actively managed mutual fund underperforms the market by over two percent per year on average. Accepting this fact, the investor’s job of allocating assets is greatly simplified.
This poor performance is not only the result of active managers but also the investor attempting to market time. That is, getting out of the market at the right and then finding the right time to get back in.
When you consider the amount of information put out by the financial media. It is no wonder that many investors panic at the wrong time. Of course, there is no right time to panic.
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” nor getting out of and back in the market at the right time rather it’s about maintaining a disciplined approach.
Investing success requires owning equities….globally diversify…..rebalance.