Average Investor Return Chart

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alex11
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Average Investor Return Chart

Post by alex11 » Sat Aug 11, 2018 8:50 am

Our 401k provider has displayed this chart to us during a couple of presentations in an attempt for us to give them control over where are investments go. I, of course, stick with the index fund, but I was wondering what truth there is to this chart and how is it skewed in their favor.

Image

Silk McCue
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Re: Average Investor Return Chart

Post by Silk McCue » Sat Aug 11, 2018 9:05 am

I have no reason to doubt the accuracy of this chart over the time period (but that doesn't really matter) It is likely the average investor has very few stocks because they are ignorant of how to invest and are afraid. They may actually benefit from their help although they could do it more cheaply without them.

You are not ignorant and anyone looking that the chart could easily say - "Wow , I am not an average investor and I already have a sane and sensible, broadly diverse and inexpensive portfolio."

Cheers

Rogue Wave
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Re: Average Investor Return Chart

Post by Rogue Wave » Sat Aug 11, 2018 9:17 am

This is from JP Morgan's "Guide to the Markets".

The most current version: https://am.jpmorgan.com/blob-gim/138340 ... linked.pdf

Or online viewer: https://am.jpmorgan.com/us/en/asset-man ... ets/viewer

From the footnotes on page 64:
Source: J.P. Morgan Asset Management; (Top) Barclays, Bloomberg, FactSet, Standard & Poor’s; (Bottom) Dalbar Inc.
Indexes used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Bloomberg Barclays U.S. Aggregate Index, Homes: median sale price of existing single-family homes, Gold: USD/troy oz., Inflation: CPI. 60/40: A balanced portfolio with 60% invested in S&P 500 Index and 40% invested in high quality U.S. fixed income, represented by the Bloomberg Barclays U.S. Aggregate Index. The portfolio is rebalanced annually. Average asset allocation investor return is based on an analysis by Dalbar Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/17 to match Dalbar’s most recent analysis.
Last edited by Rogue Wave on Sat Aug 11, 2018 9:56 am, edited 1 time in total.

Rogue Wave
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Re: Average Investor Return Chart

Post by Rogue Wave » Sat Aug 11, 2018 9:54 am

“Quantitative Analysis of Investor Behavior, 2018,” DALBAR, Inc. www.dalbar.com

Dalbar's copyright doesn't seem to allow publishing quotes from their paper. You can read it yourself here:

https://2wmko64dug4x3dv4oh97ijl9-wpengi ... _FINAL.pdf

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jeffyscott
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Re: Average Investor Return Chart

Post by jeffyscott » Sat Aug 11, 2018 9:59 am

Dalbar's results have been debunked many times, eg: https://www.advisorperspectives.com/art ... h-is-wrong

Basically, since I did not put all my current assets in the market 20 years ago, I have under performed due to my poor timing, according to Dalbar.

I feel so stupid for not having invested my 2017 income back in 1997, instead I foolishly waited until 2017 to invest that money. :oops:
press on, regardless - John C. Bogle

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willthrill81
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Re: Average Investor Return Chart

Post by willthrill81 » Sat Aug 11, 2018 10:00 am

jeffyscott wrote:
Sat Aug 11, 2018 9:59 am
Dalbar's results have been debunked many times, eg: https://www.advisorperspectives.com/art ... h-is-wrong

Basically, since I did not put all my current assets in the market 20 years ago, I have under performed due to my poor timing, according to Dalbar.

I feel so stupid for not having invested my 2017 income back in 1997, instead I foolishly waited until 2017 to invest that money. :oops:
:thumbsup

I wouldn't trust one smidgen of data from DALBAR. Their mistaking dollar-weighted returns for time-weighted returns in their initial study was inexcusable.

The so-called 'behavior gap' is likely far smaller than most believe it is. It might even be non-existent.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

H-Town
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Re: Average Investor Return Chart

Post by H-Town » Sat Aug 11, 2018 10:10 am

alex11 wrote:
Sat Aug 11, 2018 8:50 am
Our 401k provider has displayed this chart to us during a couple of presentations in an attempt for us to give them control over where are investments go. I, of course, stick with the index fund, but I was wondering what truth there is to this chart and how is it skewed in their favor.

Image
The biggest enemy is your thyself. Using your index funds or target date retirement funds will help prevent you from harming your portfolio. If you think you're smarter than everyone else and can time the market, your return will likely be very bad when all said and done. If you don't think you can just use index funds/Target date fund, then pony up and pay someone else to do it for you. It's much better than trying to time the market and/or picking winning funds.

Grogs
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Re: Average Investor Return Chart

Post by Grogs » Sat Aug 11, 2018 10:26 am

Our company gave a presentation a few years ago when they were discussing changes to the retirement plan. One of their cons for switching to a defined contribution plans was that "investors underperform the market by 180 basis points when investing on their own." I was highly skeptical of that number, but 4.3% vs. a 60/40? That's way beyond skeptical and into outright disbelief.

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jeffyscott
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Location: Wisconsin

Re: Average Investor Return Chart

Post by jeffyscott » Sat Aug 11, 2018 10:35 am

Grogs wrote:
Sat Aug 11, 2018 10:26 am
Our company gave a presentation a few years ago when they were discussing changes to the retirement plan. One of their cons for switching to a defined contribution plans was that "investors underperform the market by 180 basis points when investing on their own." I was highly skeptical of that number, but 4.3% vs. a 60/40? That's way beyond skeptical and into outright disbelief.
Exactly, 180 bp is a figure that could be believable, especially if you include the impact of the average fund costs (about 0.75% dollar weighted for US equities, IIRC). 1.8% would be toward the high end, but within the range that Morningstar's methodology comes up with:
The size of the investor gap varies by the type of fund studied, and by the time period that is used (a statement that holds true of almost any topic of mutual fund research), but, roughly speaking, it lands somewhere near 1 percentage point per year, when measuring performance during the trailing decade. Occasionally the gap is positive, such that the investor return beats the neutral return. Occasionally the gap is as large as 2 percentage points. But for the most part, it hovers somewhere between 0.5 and 1.5 points.
https://www.morningstar.com/articles/79 ... iming.html
press on, regardless - John C. Bogle

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Peter Foley
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Re: Average Investor Return Chart

Post by Peter Foley » Sat Aug 11, 2018 6:44 pm

We had an investment adviser speak to the local BH group. He basically walked the group through the Dalbar report. The numbers presented for investors' returns relative to the market were much lower than what I had been lead to believe. I did some follow up research and read a couple studies that debunked the Dalbar methodology.

In my opinion it boils down to audience. Dalbar is intended for financial advisers who can use it as leverage with their clients to allow the adviser to manage their money. If I recall correctly the other sources I read showed something in the neighborhood of the aforementioned 1 point.

Gadget
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Re: Average Investor Return Chart

Post by Gadget » Sat Aug 11, 2018 7:36 pm

Isn't the average investor someone who lets a financial advisor control their assets? Maybe that's why the "average" investor's return is so poor. They're losing all their return to AUM fees.

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