Market timing can cost you money

Over the past year and for periods of five, 10, 20 and 30 years, the average mutual fund investor has underperformed the markets for both stocks and bonds, according to research firm Dalbar. The Dalbar data leads to the inescapable conclusion that most investors are really terrible at investing. They panic and sell at the wrong moments, hurting their chances of success. The shocking reality is that investors actually made themselves poorer by giving in to their whims. Just look at the Dalbar results for 2018. The inflation rate was 1.93 percent, which means that investors would have had to earn that just amount to tread water. Instead, the average stock fund investor lost 9.42 percent, for a gap of more than 11 percentage points! Consider a few more dismal data points for stock mutual fund investors. Compared with the S&P 500, through Dec. 31, 2018, those investors underperformed by: — 5.88 percentage points, annualized, over 30 years; — 3.46 percentage points, annualized, over 10 years; — 4.35 percentage points, annualized over 5 years. The lesson investors can learn from this research is the value of staying the course and not making any sudden moves. According to Dalbar president Louis

September 4, 2019 No Comments

Pop quiz: When did the Dow last drop as much as it did today?

Short answer: Who cares? You’re not selling today, so don’t fret. Longer answer: The last time was eight months ago, but let’s put things in context. The Dow dropped by more than 800 points today — an amount that definitely catches attention. But in the grand scheme of things, it’s just a blip on the radar. So, what happened today? Basically, interest rates. Treasury yields have surged lately, specifically the yield on the 10-year U.S. Treasury note. It spiked last month and has continued its rise into October. A rise in yields means higher borrowing costs for corporations and investors. It also makes stocks look less attractive compared to bonds (For the pros out there, higher yields also make stocks look more expensive because of a higher “discount rate.”) On top of that, richer rates of so-called risk-free bonds can attract investors away from equities, which are perceived as comparatively riskier. MARKET CONTEXT Over the past two years, U.S. markets have soared. The Dow Jones Industrial Average gained more than 7,800 points in 2016 and 2017, and has continued rising this year. Dramatic numbers reported during the volatility of the first days of February kicked off a rockier 2018 than

October 10, 2018 No Comments