An aversion to losing money leads mutual fund investors to make decisions that cost them about 77% of their potential gains, according to a new study by Dalbar. The Quantitative Analysis of Investor Behavior study found that, had investors held on to their investment in the Standard & Poor’s 500 stock index for 20 years, they would have seen their portfolio grow by 11.9% annually. But in analyzing fund-flow data from the Investment Company Institute, it appears the average investor saw gains of only about 3.9% a year. “Improving investors’ actual returns depends more on correcting behaviors than on the performance of the fund,” according to the study. In other words, investors’ lack of discipline in their investment approach and fear of losing money results in costly mistakes. The report suggests that financial planners and advisers could better guide their clients into making better decisions.
