“The investor’s chief problem – and even his worst enemy – is likely to be himself.” So says legendary investor Benjamin Graham. The new 2012 Dalbar study shows that investor behavior continues to negatively impact returns, just as previous Dalbar studies have shown. Mark and Tom illustrate that mutual fund investors have consistently underperformed relevant indexes by showing the annualized returns of an average equity investor to the S&P 500 over many time periods, including 12 months and 20 years. The S&P 500 benchmark delivered higher returns in every time period. They also show a chart that compares the lower returns of an average equity fund investor to the higher returns of an all-equity IFA Index Portfolio 100.
A viewer suggested Mark was wrong on his statement that there were a "handful" of 50% S&P 500 declines over the last 20 years. In reference to the difficulty of being a long-term investor in the S&P 500 index, Mark stated that "it is not easy to ride out 50% declines, and I don't know how many there were, but there was a handful of them." We checked and over the last 20 years, we counted at least 17 monthly rolling periods where the S&P 500 index dropped between 41.3% and 50.95% over continuous periods ranging from 36 months to 6 months. We prefer to look at monthly rolling data because every month new investors buy S&P 500 index funds and start tracking their returns from their purchase date. For the first 9 months of 2008, every monthly rolling period ending on 2/09 had a greater than 40% loss. For the 6 month period from 9/08 to 2/09 it dropped 41.82%, for the 12 month period from 3/08-2/09 it dropped 43.32%, for the 15 month period from 12/07 to 2/09 it dropped 48.81%, for the 16 month period from 11/07 to 2/09 it dropped 50.95%, for the 17 month period from 10/07 to 2/09 it dropped 50.17%, for the 18 month period from 9/07 to 2/09 it dropped 48.3%, for the 21 month period from 6/07 to 2/09 it dropped 50.00%, for the 24 month period from 3/07-2/09 it dropped 45.36%, for the 26 month period from 8/00 to 9/02 it dropped 41.3%, and for the 36 month period from 4/00-3/03 it dropped 40.93%.
There were three 50% or more declines that we found and at least 17 greater than 40%. Needless to say, it is difficult for investors to even ride out 40% declines.
Annualized Investor Return vs. Benchmark
Average Equity Fund Investor vs. Indexes
