The Investment Scientist

Six Costly Investment Behavior

Posted on: June 1, 2015

Most investors are very good at hurting themselves financially. According to latest release of Dalbar’s Quantitative Analysis of Investor Behavior (QAIB), the average investor has a return of only 2.6% over the last ten years. That’s pathetic compared to what the markets gave. See the chart below, over the same period, the S&P 500 gave an annualized return of 7.4% and the bond market gave 4.6%.

Return chart
Investor behaviors are such a big drag on investment returns that Nobel Prize winner Daniel Kahneman, an Israeli American, advised Israel’s Pension Authority to send out statements once a quarter instead of once a month. Since when Israel’s pensioners don’t get their statements, they don’t do stupid things to their accounts.

So what are those behaviors that are so costly to investment returns? Watch this video:

In a nutshell, the emotional reactions (such as herding) that had helped our hunter-gatherer forebears survive so well and thus are hard-wired into our brains are literally hazardous to successful investing. In a way, the value of an advisor like myself is to separate your emotions from your money.

If you want to find out how I can help you, schedule a Discovery review with me. If you are not ready, you can still get my white paper for free: The Informed Investor: 5 Key Concepts for Financial Success.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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