Brett Arends: How Investors Lose 2/3rds of Their Profits
Arends cites the latest statistics from the Dalbar study of investor behavior:
For example, over the 20 years through the end of 2012, Standard & Poor’s 500-stock index produced an annual return of 8.21%. So if you’d invested $100,000 20 years ago and then gone away to a desert island, when you returned you’d find you’d get back your original $100,000 investment, plus a profit of $384,000.
However, over the same period, the average mutual-fund investor — Mom and Pop — didn’t do nearly so well, precisely because they kept buying after stocks had risen and then selling again after they had fallen. Their average return over that period, says Dalbar, was only 4.25% a year. At the end of the period, they would have gotten back their original $100,000 investment plus a profit of just $130,000.