New research on the St. Louis Federal Reserve’s blog takes a look at the cost of investors’ attempts to try and time the market and chase market returns. The result? The average investor underperformed the market by 2%!
The post in its entirety can be found here:
http://www.stlouisfed.org/on-the-economy/chasing-returns-has-a-high-cost-for-investors/
But here is a quick summary:
“The result shows that return-chasing behavior had a significant impact on the performance of return. The buy-and-hold strategy earned an average annual return of 5.6 percent in the sample period, while return-chasing behavior only realized 3.6 percent. In other words, chasing returns caused the average U.S. mutual fund investor to miss around 2 percent return per year, which is very significant.”
How does 2% per year affect your long term investing returns?
For an investor that invests $5,000 per year, the difference between 3.6% and 5.6% is over $30,000 after 20 years!
Once again it seems investors are their own worst enemy.
It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.
–Charlie Munger
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