How Do You Outperform the Average Investor? Do Nothing

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:

ChasingReturnsGraph

“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!

Average_Investor_Return

 

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

 

 

This is one of our daily posts on Facebook. Every Wednesday we feature a “Chart of the Week” as our daily post. Not a fan of Begin to Invest on social media? Follow us on Facebook here or look at the very top of the page for links to all our social media pages.

 

 

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