Investors are still their own worst enemy

DALBAR is a leading research firm who for 25 years have been researching investor behaviour through their annual Quantitative Analysis of Investor Behaviour study. The study measures the effects of investor decisions to buy, sell and switch in and out of different investments measured from the perspective of the investor. It shows just how poorly investors perform over time relative to the markets they invest in, 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 25rd 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

The DALBAR results for the year ending 2018 are especially painful to contemplate.

Over the past year and for periods of five, 10, 20 and 30 years, the average US equity fund investor has NEVER beaten the S&P 500 across any time period, NOR has the average US fixed interest fund investor ever beaten the benchmark bond index! In fact, fixed interest investors have generally failed to even keep up with inflation.

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 deliver an outstanding investment experience to every client by building investment solutions that pursue higher expected returns in a systematic way

  1. Firstly, we apply stringent academic research from some of the finest investment minds in the world to identify sources and dimensions of higher expected returns.
  2. We then design portfolios to systematically capture those sources of higher expected returns.
  3. Finally, we construct and maintain portfolios that are low cost, tax efficient and highly diversified whilst avoiding unnecessary turnover and trading costs.

Over the long term we have achieved consistently strong results whilst using strategies to protect client portfolios against volatile markets.

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.

If you have any questions/thoughts in relation to this article or would like more information, please click here to send us a brief email.

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