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for 20 years now dalbar has been looking at investor behavior and drawing the conclusion that investors are poor investors when left to their own devices .
they sell when they should buy and buy when they should sell and morningstars investor returns which track the inflow and outflow of money show investors overall get way less of a return then the funds do.
well i happen to like michael kitce's site the nerds eye view and there was an article that raised a very valid point.
investors may be far better than dalbars 20 year study shows.
why?
because lets assume when dalbar started this tracking 20 years ago many of us started investing in the late 1980's and 1990's.
markets were fabulous during that time frame .
one problem though , many of us didnt have much money in the markets yet as we feed our ira's and 401k's a little at a time with periodic payments..
so lets say we put 1000 bucks a year away for 10 years . lets say the markets doubled the first year and then stayed flat for 9 years.
you would have 11,000 dollars.
the markets saw a 7.2% return time wise but you got 1.73% dollar wise ..
on the other hand lets say the markets were flat for the first 9 years and doubled the last year as you put the same 1k a year away..
well you got 20k now. thats 12.3% . you beat the 7.2% the markets got.
in reality thats what happened.
the 1990's were great market years , the 2,000's were crappy market years.
the results dalbar may be tracking are example 2 . investors didnt have much money invested until they built it up in the later years and since growth was slow in the 2,000's it shows they didnt do well compared to the funds return..
makes you wonder if since dalbar sells these reports to the industry if its ammunition for pros who can say you need us and the proof is most small investors dont do well on there own.
Last edited by mathjak107; 10-08-2012 at 10:56 AM..
You didn't mention one of the all-time great reasons:
People are obsessed with "breaking-even." This is why so many rent their
houses out - rather than just pay to get out. .... like there is some magic ...
That's what's really sad about the forced low interest rates of today. Back in the 50's thru the 70's
someone could just be a frugal person who saved cash in a savings account and do just fine.
Now, you can't even buy bonds and provide for your retirement unless you are putting away 50%
or so from the get-go. $ 1 million in safe bonds only provides $30k or less in income. That income
is actually less than $-0- on an inflation-adjusted basis.
tht would only be true if you were lump summing in right now. anyone who was already retired more than not had a fair amount of bonds and had amazing capital gains to make up for the lower rates on cash.
cash is an asset class and as we all know never bet the ranch on one asset class.
wealth comes from from capital gains over time not from the drips and draps we manage to round up from our pay checks.
a penny saved may be a penny earned but its still a penny for the most part.
folks buying in today may stand a pretty fair chance long term of doing better then right now since there are 12 years of crappy market returns behind us already and interest rates should start to rise on cash ,annuities and short term bonds helping them out.
the jury is still out on those who retired in 2000.
depending on the allocation they may end up in trouble.
Last edited by mathjak107; 10-08-2012 at 12:56 PM..
the jury is still out on those who retired in 2000.
depending on the allocation they may end up in trouble.
There will ALWAYS be cycles no matter what. That's why its extremely important to live your life frugally where you save more than you earn and if you are caught in a cycle of lower than expected returns, you have a good base of savings because of good habits. We don't know for certainty what our future returns will be.
That's why alot of my friends are in trouble because they care more about the shiny new car and the debt they have than worried about putting away 10% of their 401k....
believe it or not the returns arent even as important as the sequence of returns. lower returns in the right sequence can out perform higher returns in the wrong sequence by alot.
believe it or not the returns arent even as important as the sequence of returns. lower returns in the right sequence can out perform higher returns in the wrong sequence by alot.
I understand that. However, what doesn't get enough attention is a simple philosophy I follow from (the Bogleheads) is that if you don't save enough, no amount of financial trickery or expected returns will provide a comfortable retirement which many strive to achieve.
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