How does the "Average Investor" stack up?

By Mike Jones, posted October 15, 2015

Last week I received the 4th quarter edition of J. P. Morgan Asset Management's Guide to the Markets.  

The guide is most certainly a publication for the professional as it is page after page of data pertaining to the investor and financial markets covering details like standard deviation, the VIX, Correlation, P/Es Yield Spreads, Return and Valuation Dispersions... you get the picture. 

This quarter's issue contains 68 pages of charts, graphs and tables... and I love it!

One slide in particular caught my attention and caused me to study and analyze it for a while.  See below:

So what we have are twenty years of asset class returns (20 years that went by entirely too fast, I'd say!). Just a few tips: "60/40" (the column in blue) means a portfolio that is balanced between stocks and bonds (footnoted above).  EAFE is an index that measures the return of stocks in Europe, Asia, and the Far East.  

But I want you to zero in on "average investor" (in orange).  

Dalbar, which follows the investment choices of mutual fund investors and has done so since 1994, has this to say about the average investor:  

Since 1994, DALBAR's QAIB has been measuring the effects of investor decisions to buy, sell and switch into and out of mutual funds over both short- and long-term time frames. The results consistently show that the average investor earns less - in many cases, much less - than mutual fund performance reports would suggest.

Is there a lesson to learn here? I definitely think so!

Here's my advice: do what you must to employ discipline in your investment process, which may include one or more of the following tasks: 

• Get a financial plan
• Adopt an asset allocation program
• Hire an advisor
• Systematically dollar cost average
• Let your investments work for you and your family 
• Do NOT sabotage your plan/process