Behavioral Finance

I have heard this study quoted many times and found it once again...

"In 2001, Dalbar released a study entitled Quantitative Analysis of Investor Behavior (Behavioral Fianance), which concluded that average investors fail to achieve market-index returns.

It found that in the 17-year period to December 2000, the S&P 500 returned an average of 16.29% per year, while the typical equity investor achieved only 5.32% for the same period - a 9% difference. It also found that during the same period, the average fixed-income investor earned only a 6.08% return per year, while the long-term Government Bond Index reaped 11.83%."

Why are we as investors so bad at figuring this out? Our brains/emotions/psychology have a lot to do with it! Most cannot passively invest and HOLD!

As of now, I don't really need to worry about this. I am not making individual stock picks or moving in and out of mutual funds or ETFs. I merely Dollar Cost Average (DCA) into my 401(k) and IRA. In the future perhaps I may have to make sure I remember the above research on Behavioral Finance as my net worth increases.


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