The Behavior Gap: How Retirement Investors Can Avoid It

Stay Wealthy Retirement Podcast

Taylor Schulte, CFP®

Financialplanning, Retirement, Money, Taxplanning, Stocks, Wealth, Business, Investing, Retirementplanning

2.4 • 606 Ratings

🗓️ 14 September 2023

⏱️ 14 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

Year after year, investors underperform the funds they invest in by almost 2%. 🤯

Not because of fees or taxes...but because of poorly-timed investing decisions.

In today's episode, I'm sharing the results of this year's "Mind the Gap" study from Morningstar.

I'm also sharing:

‣ The asset classes with the highest and lowest behavior gap over the last 10 years

‣ The relationship between volatility and investing returns

‣ Three things retirement investors can do to earn more of the returns generated by their investments

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Transcript

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0:00.0	Over the last 10 years, the average mutual fund and exchange traded fund gained about 7.7% per year.
0:08.1	The average person investing in those same funds, on the other hand, only gained about 6% per year during the same time period.
0:17.0	In other words, investors underperformed the exact funds that they were investing in by
0:22.6	about 1.7% per year over the last 10 years. And contrary to what you might be thinking,
0:28.9	investors did not underperform because of high fees or taxes. Investors underperformed because of
0:35.7	poorly timed purchases and sales of the funds. They underperformed because of poorly timed purchases and sales of the funds.
0:39.0	They underperformed because of their investing behavior.
0:42.8	And that's precisely why this gap between the average investors return and the average
0:48.3	fund return is widely referred to as the behavior gap.
0:52.7	Welcome to the Stay Welfy podcast.
0:54.2	I'm your host, Taylor Schulte, and today I'm discussing the recently updated Mind the Gap
0:58.5	Study published by Morningstar.
1:00.7	I'm sharing what asset classes had the highest and lowest behavior gap over the last
1:04.8	10 years.
1:06.0	The role volatility plays in investing behavior and three things retirement investors can do to earn more
1:12.5	of their chosen investment funds total returns. To grab the links and resources from today's
1:17.4	episode, just head over to you staywealthy.com forward slash one-99. To recap, the average mutual fund and exchange traded funds total return for the last 10 years ending December 31st, 2022 was 7.7% per year. The average investors total return in the exact same funds over the exact same time period was 6% per year. Put simply, investors missed out
1:47.5	on about one-fifth of their fund investment's average net returns over the time period measured.
1:54.0	And these results have been consistent year after year, decade after decade. Investors, on average,
2:00.2	continue to be negatively influenced by
2:02.2	their emotions and behaviors, leading them to make poorly timed buying and selling decisions.
2:08.0	It turns out that buying and holding is much easier said than done. As my friend Carl Richards
	...

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