The Best Investment Strategy? Getting Out of Our Own Way
We’re still making the same old mistake of buying investments when prices are high and selling them once their prices have fallen.
I had hoped things had changed, I really did. But Morningstar’s latest Investor Returns data says otherwise. More than 10 years after I first started thinking about this data, the behavior gap still exists. The behavior gap is what I refer to as the difference between what the average investment returned and what the average investor earned.
What’s the difference? Pretend for a minute that we have a mutual fund with a 10-year-average return of 10 percent per year. That’s the investment return. If you put your money in the fund, kept it there for the entire 10 years, and didn’t add or take out any money, then your investor return would also be 10 percent. So in this very hypothetical example, the investment return and the investor return were the same.