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DALBAR 2016 QAIB: Investors are Still Their Own Worst Enemy

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For 23 years, DALBAR has been publishing their annual Quantitative Analysis of Investor Behavior study that examines investor performance in mutual funds. Their goal is to shed light on how to improve performance by managing behaviors that cause investors to act imprudently.

If you have been following DALBAR’s studies over the years, you are well aware that there has been one consistent theme: investors are more often than not their own worst enemy when it comes to investing. Often succumbing to short term strategies such as market timing or performance chasing, many investors cannot exercise the necessary discipline to capture the benefits markets can provide over longer time horizons.

In their 23rd edition of the study, DALBAR also concludes something that we often tell our prospects and clients on a daily basis: investment results are more dependent on investor behavior than on fund performance. Mutual fund investors who hold on to their investments have been more successful than those who try to time the market.

A long-term financial plan is only as good as your ability to stick to it through thick and thin. This is why we like to take the time to understand your risk capacity and utilize tools such as the retirement analyzer to give you a level of confidence in your ability to achieve long-term financial success.

Investor Performance

The bar chart below shows the difference in performance as well as the growth of $100,000 between the average equity investor, various commercial benchmarks, as well as IFA Index Portfolio 100 for 2016. 

The average equity investor captured less than half of what a globally diversified and disciplined investor captured last year.

Once we expand the time period for the full 30-year period from 01/01/1987 to 12/31/2016, we see the long-term ramifications for investors.

As you can see, the average equity investor has just kept up with 1-Year U.S. Treasury Notes and was well behind both the S&P 500 and IFA Index Portfolio 100.

The greatest value an advisor can provide a client is keeping them disciplined and committed to their long-term financial plan. Advisors will more than make-up their annual fee by keeping investors from becoming their own worst enemy.