Advisors Think We’re Dumb…
Maybe You’re Not As Stupid as Your Advisor Thinks
From our friends at Bloomberg.com:
Investors need to be saved from themselves.
That’s the conventional wisdom, and there’s some truth to it. Individual investors can have comically bad timing. They buy when stock prices are high. They panic and sell when markets plunge. They invest with the hot mutual fund managers just as the managers’ luck runs out.
And what’s their reward? They supposedly underperform the very mutual funds they invest in by some four percentage points a year, or more, according to an annual study by the research firm Dalbar.
Independent experts aren’t sold.
Look at the sheer amount of investor bungling that Dalbar calculates each year in its Quantitative Analysis of Investor Behavior, or QAIB. Last year, the report said, the average equity mutual fund investor underperformed the S&P 500 index by 3.7 percentage points. Over the past 30 years, the QAIB finds, stock fund investors lagged behind the market by an average of 6.7 points a year.
To some, those numbers seem way too high. “The Dalbar analysis has a kernel of truth but almost certainly overstates the bad market timing of individual investors,” says Brad Barber, a finance professor at the University of California at Davis. A recent article by mathematician Michael Edesess argues that Dalbar’s conclusions can’t be used to demonstrate the folly of individual investors. Yet, he says, financial advisers routinely use it to justify high fees.
And always remember… You’re not as dumb as your advisor thinks, and advisors think we’re dumb