Market Returns!

Most investors have failed by a long shot to achieve market rates of return. Based on the Dalbar research study, the average investor has failed significantly to achieve market returns. From 1984 thru 2013 the S&P 500 has earned on average11.1% per year while the average mutual fund investor has earned LESS THAN 4%.

An assortment of United States coins, includin...
An assortment of United States coins, including quarters, dimes, nickels and pennies. (Photo credit: Wikipedia)


Why are the returns for mutual fund investors so low?

  1. The average holding period is 3.31 years. Not quite long term.
  2. Track record investing – chasing the market.
  3. Stock picking.
  4. Market timing.


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.


You can tell you are gambling and speculating with your money if you:

  • Stock pick (Active Management)
  • Market Time (Active Management) Getting into and out of the equity markets, presumably at the right time.
  • Track record Investing. Picking investment managers based on their past performance.


Remember it’s not about picking the “best funds” rather it’s about maintaining a disciplined approach.


Investing success requires you to:


  • Own equities and high quality short term fixed income.
  • Globally diversify.


Your investor coach will help you build your portfolio based YOUR time horizon and tolerance for risk. Your coach will base this strategy on academic research. Some of which has won the Nobel Prize in economics.


Many ‘advisers’ will allow their clients to market time during market extremes both up AND down. Please remember these are not investment professionals but rather investment salespeople. They will do whatever the client wants in an effort to keep their ‘business’.


When you work with an investor coach/fiduciary adviser you will be ‘coached’ to remain calm during market extremes. You will need to remain disciplined to your investment policy statement.


Remember you are an investor not a gambler/speculator. Your savings need to last your lifetime.


Stop empowering the Wall Street bullies and fire your broker/agent and hire an investor coach/fiduciary.

Your Fund Manager Probably Has No Investment Skill

Image via Wikipedia

Any effort expended trying to find the next great fund manager is effort wasted. To success in investing for your long term goals you must own equities…globally diversify…rebalance.

Even if you were fortunate enough to locate this needle in the mutual fund haystack, how confident can you be that his stellar performance will persist? Studies of mutual fund performance demonstrate little persistence by those anointed as investment stars based on their past performance. Burton Malkiel noted, in his seminal book, A Random Walk Down Wall Street, “It does not appear that one can fashion a dependable strategy of generating excess returnsbased on a belief that long-run mutual fund returns are persistent.”The next time your broker tells you to buy a mutual fund he is recommending, ask him these questions:

1. Why are you able to identify just a couple of managers who you believe have genuine investment skill out of the thousands out there?

2. If you are basing your recommendation on their past performance, doesn’t the SEC require disclosure that past performance is no guarantee of future results?

3. Did any of your clients actually capture the returns you are touting?

4. How many years of data did you look at before you concluded the fund manager has genuine investment skill?

The answers to these questions will quickly expose the folly of the exercise of trying to identify in advance fund managers with legitimate investment skill.

As noted by Nobel Laureate Paul Samuelson, in Challenge to Judgment, 1974, dismissing those who believe they can find managers with this skill: “They always claim that they know a man, a bank, or a fund that does do better. Alas, anecdotes are not science. And once Wharton School dissertations seek to quantify the performers, these have a tendency to evaporate into thin air–or, at least, into statistically insignificant t-statistics.”

There is additional evidence that 60 years of data are required to determine if a fund managers results are a result of sill or luck.

Please comment or call to discuss how this affects you.

  • The Derivative Scare: Fear Mutual Funds, not ETFs – ETF Guide (
  • What MF Global Can Teach You About Investing (
Enhanced by Zemanta