Are You Better Than The Average Investor?

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The latest study conducted by DALBAR shows that from 1991 through 2010, the average equity fund investor realized an average annual total return of 3.8%, while the S&P 500 Index provided an average annual total return of 9.1%. Similarly, over the same time period the average fixed-income investor obtained an annual rate of return of just 1.01%, while the Barclays Capital U.S. Aggregate Bond Index returned 6.89%.
Research indicates that investment decisions can be affected by a variety of issues, including "herd mentality," overconfidence, pride and regret. There is also a tendency to respond much more strongly to losses than to gains, a tendency that drives many investors out of the markets during acute declines. Thus, this difference in returns is largely attributable to investors getting in when times are good -- essentially buying high and selling low.
The lesson here is that a consistent financial plan helps investors focus on the long term and avoid the type of habits displayed by the average investor.