DALBAR is a leading research firm who for 23 years have been researching investor behaviour through their annual Quantitative Analysis of Investor Behaviour study. The study shows just how poorly investors perform over time relative to market benchmarks and the reasons for that underperformance.
As long-term followers of DALBAR’s studies over the years, we are well aware that there has been one consistent theme: investors are more often than not their own worst enemy when it comes to investing and they should fear themselves more than any potential economic crisis or market correction.
Often succumbing to short term strategies such as market timing, performance chasing and excessive switching out of one investment to another, many investors find it difficult to exercise the necessary discipline to capture the benefits markets can provide over longer time horizons.
In their 23rd edition of the study, DALBAR also concludes something that we often tell our clients on a regular basis: investment results are far more dependent on investor behaviour than on actual investment performance.
Highlights from the latest DALBAR study on Investor Performance
As the latest data from DALBAR’s Quantitative Analysis of Investor Behaviour shows that the average US equity fund investor has NEVER beaten the S&P 500 across any time period, NOR has the average US fixed income fund investor ever beaten the benchmark bond index!
What this translates to in terms of investor wealth accumulation is as follows, based on an initial investment of $100,000:
- Over the 2016 year, the US equity market generated a return of 11.96% whereas the average equity investor only generated a return of 7.26%. In dollar terms over this one year the market return on the initial $100,000 investment would have grown the portfolio to $111,960 yet the average equity investor would have only grown their portfolio to $107,260.
- Over the past 30 years, the equity market generated a return of 10.16% per annum whereas the average equity investor only generated a return of 3.98% per annum. In dollar terms over this thirty-year time frame the market return on the initial $100,000 investment would have grown the portfolio to $1,822,711 yet the average equity investor return would have only grown their portfolio to $322,474. This is not a typo – it represents a $1.5M difference!
Not surprisingly, similar studies have been conducted in the Australian investor market with very similar results.
The DALBAR study concludes that regardless of the state of investment markets – boom, bust or somewhere in between, the returns people make on their investments rely far more on their own investor behaviour than on the actual investment performance of the assets they are investing in.
Ultimately what drives your return is how you allocate your capital across different assets, how much you invest over time and the power of compounding.
At Calibre Private Wealth Advisers, our aim is to ensure that clients achieve returns that are commensurate with the level of risk they are willing to accept and that portfolio returns are in line with or exceed market benchmarks.
Our evidence based investment approach is transparent and based on academic research. Over the long term we have achieved consistently strong results whilst using strategies to protect client portfolios against volatile markets.
We offer a high quality investment solution that is:
- Broadly diversified, tax efficient, very low cost to implement and is not available to the general public.
- A disciplined and structured approach so that we are not guessing with your money.
- Founded in academic research to gain every edge we can in volatile markets.
- The best way to protect and grow your wealth, so you have the highest chance of achieving your goals.
However, as much as we use evidence and science to construct portfolios, it is patience, discipline and human emotions that will ultimately determine the success of our investment strategies.
That is why the greatest value an adviser can provide a client is keeping them disciplined and committed to their long-term financial plan, so they have the highest chance of achieving their goals.
A good adviser will more than make up their annual fee by keeping investors from becoming their own worst enemy.