Over the past 20 years investors in stock mutual funds have underperformed the S&P 500 by 6.5% a year. (8.35% vs. 1.37%.) That return doesn’t even keep up with inflation.
They did even worse in bonds, underperforming the Barclay’s Aggregate by 6.7% a year. (7.43% vs. 0.77%.)
From the annual Dalbar study:
“The dramatic events that continue to plague our financial markets have provoked panic, which exacerbates the ongoing carnage,” said Lou Harvey, president of DALBAR. “For 15 years, QAIB has shown that investor returns lag what performance reports and prospectuses would lead one to believe is achievable. While those returns are, in fact, theoretically achievable, the reality is that investors are not rational, and make buy and sell decisions at the worst possible moments,” he said.
Among the studies findings:
- For the 20 years ended December 31, 2008, equity, fixed income and asset allocation fund investors had average annual returns of 1.87%, 0.77% and 1.67%, respectively. The inflation rate averaged 2.89% over that same time period.
- Equity fund investors lost 41.6% last year, compared with 37.7% for the S&P 500 Index.
- Bond fund investors lost 11.7% last year, versus a gain of 5.2% for the Barclays Aggregate Bond Index. This disparity is largely due to the underperformance of managed bond funds caused by mortgage-backed securities.
- With an annual loss of 30% last year, asset allocation fund investors fared better than equity fund investors.