Winning in a Losing Market

In a recent press release, Lou Harvey, President of DALBAR, said,

For 15 years, QAIB has shown that investor returns lag what performance reports and prospectuses would lead one to believe is acheivable.  While those returns are, in fact, theoretically acheivable, the reality is that investors are not rational, and make buy and sell decisions at the worst possible moments.

2008, like all the over years shows investors losing more than the market.  Last year (2008) equity fund investors lost 41.6% and the S&P 500 lost 37.7%.

DALBAR included in their report that investors guessed market directions right 42% of the time by buying low and selling high.  That means that 58% of the time investors bought high and sold low.  For example most investors sold after the September melt down, realizing their losses.

So everyone involved had a bad year last year but the key thing to point out is that the people who paid for it (mutual fund investors) did worse than those that could have just bought the S&P 500 index.  Some mutual did do better than others but what DALBAR points out is that the average investor did worst by investing in mutual funds compared to the old S&P 500 which cannot avoid or side step anything like mutual fund managers can.

What this data says to us is that investors are far better off

  1. Investing using index funds, building highly diversified portfolios.  We happen to use ETFs
  2. Investing with a good adviser can help reduce the gap between market returns and average mutual fund investors returns.
  • The above statements correspond with our Wiser Advice, Keep costs Low, Diversify, and Always Invest for the Long Term

To correct some of these investor behaviors that lead to this underperformance, DALBAR suggests

  • Dollar cost averaging
  • “Purpose Driven Asset Management” for advisors, which is splitting up clients assets into different investments that are for different purposes.  This strategy is designed to help calm clients panic and fears.
  • For advisors to provide a better understanding to clients the investment’s leverage exposure.

For more information about the study, click here.

To learn more about us as wealth managers, visit the ‘About’ tab at the top of this page, or visit  You can also use the ‘Contact Us’ at the top of the page to have your questions answers and learn more about how we can lower the gap addressed above.

For a more in-dept news report, click here.

By Published On: March 16, 2009

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