For 15 years, Boston-based Dalbar has calculated the extent to which actively-managed mutual funds have underperformed the market. But Dalbar has gone beyond that now-familiar finding to help the world understand that investors underperform their own funds by buying relatively high and selling relatively low, piling into funds when they're hot and bailing out when they're not.
In the latest edition of its Quantitative Analysis of Investor Behavior, just released on Monday, Dalbar has more bad news:
- For the 20 years ended December 31, 2008, equity, fixed income and asset allocation fund investors had average annual returns of 1.87%, 0.77% and 1.67%, respectively. The inflation rate averaged 2.89% over that same time period.
- Equity fund investors lost 41.6% last year, compared with 37.7% for the S&P 500 Index.
- Bond fund investors lost 11.7% last year, versus a gain of 5.2% for the Barclays Aggregate Bond Index. This disparity is largely due to the underperformance of managed bond funds caused by mortgage-backed securities.
- With an annual loss of 30% last year, asset allocation fund investors fared better than equity fund investors.
Ouch. As we've written before, getting out made sense at various points in 2008. And 2007, for that matter. The challenge for those who did will be when to get back in.