Investors often underperform the market because of overreactions to episodes like last week’s big one-day drop
.. History shows investors tend to pile into the market when it hits big, round numbers, such as Dow 20000, but also bail on stocks just as quickly at the first sign of trouble.
For instance, investors pulled nearly $8 billion from U.S. equity funds in the week after Brexit, one of the bigger weekly withdrawals of 2016, according to the Investment Company Institute. The S&P 500 fully recovered from Brexit less than a month later, with many of those investors missing out on the rebound and locking in what should have been just a temporary paper loss.
.. the average investor in U.S. stock mutual funds lost 2.3% in 2015, whereas the S&P 500 was slightly positive that year, including dividends. Dalbar, which has published this study each year since 1994, plans to release an updated version this week.And 2015 wasn’t an anomaly. The gap between investors’ returns and the market’s performance is even wider over a longer time horizon. Equity-fund investors earned just 3.7% annually over the past 30 years through 2015 compared with a 10.4% annual return for the S&P 500.