Investors Not Doing As Well As Advertised

Investor’s Doing Worse Then Advertised!!

By: Brendan Magee 9/1/2010

Every time Ryan Howard or Chase Utley comes to bat we see how well or poorly they are hitting. Under their names is their batting average, home runs, rbi’s, etc. For professional ball players there’s no hiding their productivity or lack thereof.


For investors it’s not so easy to see. It’s not like any publication is airing our personal returns, and there is no law forcing us to disclose our private information. So how do we know if our returns as an investor are meeting or failing to meet acceptable standards? If we go by the results the mutual fund companies boast about in their ads and commercials, we could easily believe investors are doing pretty well. So how well are we doing?


According to the Dalbar Corporation, a research firm located in Boston, Ma. We’re really not doing well at all. Over a twenty year period from 1989 through 2008, the average stock mutual fund investor’s average annualized return was a paltry 1.87%. The average bond fund investor did even worse at 0.77%. Now you might blame these dismal numbers on a free falling stock market, but that wouldn’t be the case. From 1989 through 2008 the S&P 500 Index’s annualized return including a terrible 2008 was 8.35%. The Barclay’s Bond Index did 7.43%. The real killer here isn’t how far behind the bench marks investors are, it’s that inflation went up 2.89% per year in that time. The struggles seniors feel today are the result of their money not keeping pace with the rising cost of living. Are you on pace to struggle or thrive in retirement?


Now over the course of those 20 years, do you recall any body flashing a score letting you know how poorly you were doing? Absolutely not!


Now if it’s not the stock market that's doing the damage what is at the root of such dismal results? According to the Dalbar Corporation it’s investor impatience. Investors have very little tolerance to ride out difficult times. As a result they are continually taking their money out of investments after a loss and buying into investments that have performed better (Sell low/buy high isn’t the formula for success). This conclusion has been backed up by a recent New York Times article that shows investors took $240 billion dollars out of the stock market between 2007 through 2009. Remember the panic?


Any one heard an advertisement for gold in the last few years? How about fixed, guaranteed investment? Those who sold out made the impact of the markets drop permanent.


So the questions are: How do investors get the ship turned in the right direction? How do we make sure impatience doesn’t do us in again in the future?


First we have to focus in on the right issue. We have to realize that as investors we are biggest risk factor to our investments. We do far more damage to our investments than anything else. (I know it may sting a little to hear that, but the sting will go away) Let’s face it, we get angry and scared when our investments do poorly. We get happy and confidant when our investments do well. That’s how we as human beings function. We were born with our instincts and emotions and we really need to acknowledge how powerful they are.


Second, we have to realize that as far as keeping pace with the rising cost of living stocks are our best weapon. The S&P’s annualized 8.35% over the past twenty years would have given us a nice cushion against inflations 2.89%. The market isn’t your problem. It’s your money’s best friend. Marry yourself to the academic definition of diversification.


Third, don’t go it alone. Find an advisor you trust. Meet with them at least quarterly. Make certain they are educating you, not simply selling you a product. A good way of knowing whether or not you’re being educated is if you can recite what is being done with your money in one minute or less and can someone else comprhend what you're telling them. Investing isn’t complicated.


Fourth, empower that individual to protect you from you. This is not an act of weakness or a lack of intelligence. This is an act of courage and wisdom.






Brendan Magee is the owner and CEO of Inevitable Wealth Coaching. With a question or comment you can call 610-446-4322. You can also send an e-mail to Brendan@coachgee.com