Who's Smarter Vanguard or Fidelity Investors?

Is it investment or investor performance that counts?

Who's Smarter--Vanguard or Fidelity Investors?

Morningstar Investor Returns reveal who has earned better returns in this decade.I found this little exercise, by Morningstar, noted by the headline above, to be quite interesting.

We like to teach that the key to long-term investor success is not investment performance, but investor performance! The single biggest detriment to investor performance is the malady called: "chasing returns." In other words, looking at past performance (usually very short term) and looking to place one's funds with the hottest manager or stock in the hopes of their or its continuing it's hot run.

“Of course, the pre-cursor to this is leaving a supposedly poor performing investment and / or manager for the "new star" in the firmament! This cycle oft repeats when the current high flyer crashes back to earth, along with the late investors' portfolio -- at which time the investor now goes looking for the latest star!Everyone knows how to make money in the markets: buy low and sell high. The foregoing is the exact opposite and is what most investors actually do (investor performance), which is to buy high and sell low (the last eighteen months and, in particular, since the first of this year, provide ample evidence of this phenomenon).

Back to the Morningstar story. So who had the "better" returns? According to my benchmark, neither one really. Vanguard, the supposed winner, had its investors earn, over the last ten years, the paltry amount of 2.63% while the Fidelity investors earned 1.52%. What is particularly interesting is that the asset weighted returns for the two firms were actually much closer than the investor returns, which isn't really surprising since investor behavior is eliminated from that calculation.

My decision regarding who's the smartest group, is: neither!The lesson here, as most of my readers well know, is that it is always what it is that the investor does and how the investor controls his/her emotions rather than how any underlying investments do. Appropriate diversification matched with imposed, disciplined rebalancing that forces a portfolio to always be buying low and selling high and not chasing returns is the sure and simple way to long-term investment success!

Thanks to Fred Taylor

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