[kevman]

The negative impact on investor portfolios is best illustrated through two studies, one by Dalbar Inc. called Quantitative Analysis of Investor Behaviour, and a second by Morningstar. In the 2006 update of the Dalbar study, the firm again found that investors follow the same pattern as they always have, investing most after markets have risen, and selling after markets have fallen. The impact of this behaviour is that over the 20 years ending 2006, the US equity markets rose 11.9%, whereas the average US equity fund investor was up a meagre 3.0%, almost a full percentage point below inflation.

The Morningstar study, though conducted over a decade ago, still provides some interesting facts. For the five-year period ending in 1994, the average return of more than 200 growth funds analyzed was 12.5%, while the average investor in those funds suffered losses of 2.2% due to the timing of their investments. These studies clearly show that the biggest detriment to investor performance is not manager performance or fees, rather investor behaviour including the reaction individuals have to the markets when their portfolio is rising and falling dramatically.

Interesting...