Friday, September 16, 2005

Kimmunications: Investment Return Doesn't Mean Diddly

Even when the stock market goes up, investors may lose out if they try to time the market. The extent to which market timing occurs is debateable but no doubt substantial. That is the gist of a recent blog entry over at Kimmunications.

Kimmunications cites a Dalbar study that finds individual investors lose a great deal as a result of this attempt to time the market.
"over the 19 year period 1984 to 2002, the S&P 500 was up an average of 12.9%. U.S. stock mutual funds had a return over the same period of only 9.6%. That is the investment return of U.S. equity mutual funds. But the stock mutual fund investor had a return of only 2.7%!"
Without seeing more of the study, I have always had by questions on how investors could do that poorly (I would have to guess that many investors got in right at the top), but unfortunatley the paper is not available online (I did email them for a copy).

That said, the idea is sound and I absolutely love the figure that shows that actual stock picking makes up only a small portion of overall returns---it will be an excellent teaching tool!


Anonymous said...

Bogle's take on the Dalbar study can be found here

"Worse, what fund investors selected was not the average fund. Rather they invested most of their money, not only at the wrong time, but in the wrong funds."

(2/3rds of the way down)

FinanceProfessor said...

Very interesting. Thanks for that link.