Dalbar Study Reveals Investor’s Ineptitude

By on June 6, 2011

Several articles in recent weeks have revealed the latest results of the study of mutual fund investor performance by Dalbar, a mutual fund research firm operating in Boston.  Dalbar appears to update this study every year.  Currently it encompasses 20 years of historical data.  The results have been widely disseminated and reveal surprisingly poor results achieved by the average mutual fund investor.

Dalbar found over the 20 year period ending December 31, 2010, the average mutual fund investor achieved an average annual return of 3.8 percent.  This compares to an an average return of 9.1 percent per year for the S&P 500.  In other words, starting with a $10,000 balance, the average mutual fund investor would have ended up with $21,084 after the 20 year period.  The S&P 500 index’s return provides an ending balance of $57,081.  If you reduce the index’s return by an expense ratio of the typical 0.2% for index funds to 8.9 percent per year, the ending balance is $55,024.

It is sobering to realize that investors are leaving that much money on the table due to bad timing decisions and paying excessive investment fees.

The excel formula used to calculate the ending balance of a lump sum given an annual rate of return is shown below:

Sources:  N. Y. Times, The Globe and Mail


  1. Demetrius Hennessey Washington

    June 6, 2011 at 7:01 pm

    Had the average mutual fund investor chosen to invest in the S&P 500 their results would be about the same, because they’d still sell when the market is down and buy when the market is up. Hell, those high fees very well may have provided some benefit (I’m waiting for a study showing the results of an average investor using an S&P index fund).

    The “average” investor is a predictable shill.

    • Barron Maestro

      August 10, 2011 at 3:19 pm

      The Dalbar study of investor futility also extends to the bond market. They point out, “As with previous years, investor returns lagged market averages. For the twenty-year period, equity investors earned 3.83% and asset allocation fund investors earned 2.56% compared to the S&P 500 return of 9.14%. For the same period, fixed income investors earned 1.01% compared to the Barclays Aggregate Bond Index return of 6.89%.” See their press release -> Investors Can Manage Psyche to Capture Alpha

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