Investors Out 53% In Returns!!

Investors Receiving 53% Less In Available Returns!!

                                                                                           by: Brendan Magee


This week there was a lot for investors to worry about. The Dow dropped 800 points. There are indicators that a recession has started. There is always news of a trade war between the U.S. and China and the impact that is having on our economy.  However, all this pales in comparison to a problem that is causing more damage to investors and their families than anyone is taking the time to realize.




For the 30 year time period 1988 through 2018 investors received 53% less of the returns that were readily available to them. From 1988 through 2018, U.S. Large Company Stocks had an annualized rate of return of 9.97% while the average stock mutual fund investor did an annualized 4.09%. So investors on average only received 47% of the returns that were readily available to them. Bond investors did even worse. Their annualized return or this period of time was a measly 0.26%.


To put this in perspective, at 9.97% annualized return $100,000 invested in 1988 through 2018, an investor who invested in U.S. Large Company Stocks  would have seen their portfolio grow to $1,730,719. The average stock mutual investor in that same year would have seen their $100,000 doing an annualized 4.09%, would have seen their portfolio grow to $780,670. In other words, the average investor received $950,049 less in returns that were readily available to them.


Yes, there are investors who did better than the average, but even if they did twice the average they are still underperforming the benchmark. Now even more heartbreaking is the fact that there are also investors who did worse than the average. We have to consider there are investors who did twice below the benchmark which means they saw close to a zero percent annualized return over the past 30 years.


Now take a moment to think about the impact this disparity in returns is having on the lives of everyday people. Money, or lack of success with money, causes stress on people's lives. Stress leads to health problems. Money creates tension in the home. Relationships get strained, and we all know that frustration with money can lead to divorce. Vacations that were planned have to be put off or cancelled all together. Colleges that you planned on sending your kid to have to be taken off the list. Retirements have to be put off or never happen at all. Second jobs have to be taken up. Less time is spent with the family. Explanations that can't be given as to why the plans families made and aren't happening only add to the frustration husbands and wives start to experience with one another. Lives are being impacted by this epidemic.


So what's at the root of this problem? How do we start to right the ship? First and foremost, we have to start working on the right end of the problem. The same study that showed the disparity in investor returns point to another problem. Investors are making changes to their portfolios within a 3 to 4 year period of time. Now most people will readily agree that when they are opening up an I.R.A. or participating in a 401k plan that they are in engaged in a long-term process and that the money needs to be left alone to grow. Unfortunately, making changes to a portfolio every three to four years is not behavior that's consistent  with producing good long-term results, matter of fact it's in complete conflict with it.


So in other words, investors are not dealing with an investing problem, they are dealing with a behavior problem. Much like an obese person can't stay away from junk food or an alcoholic can't stay away from the booze, investors are engaged in behavior that is every bit as destructive to themselves and their families. Unfortunately, until we acknowledge the problem for what it is, a human problem, we are not going to change the results investors are achieving.


So ask yourself one simple question, Are you capable of managing your behavior over a 25 to 30 year period 100% in lock step with producing the results you want for yourself and your family? If the answer is no, like a lot of people have done with Weight Watchers or Alcoholics Anonymous get structures in your life that will help you stay on the right path. If the answer is yes you believe over 30 years you can be consistent with your behavior, get a second opinion from your spouse?


Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments send an e mail to Brendan@coachgee.com or call 610-446-4322