People are just bad at investing.
Because of the way our brains work, we can’t help but buy investments when prices are high for fear of missing out. And then we dump those investments only after prices have fallen for fear of losing even more money.
Unfortunately, history shows we should be doing the exact opposite of that.
This chart from JP Morgan Asset Management is a familiar one. It shows that over the past 20 full years, the average investors annualized returns have underperformed every major financial asset class.
Average investors only barely outperform the inflation rate.
For more on this, read this.
*Here’s JP Morgan Asset Management on the chart: “Indexes used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Barclays Capital U.S. Aggregate Index, Homes: median sale price of existing single-family homes, Gold: USD/troy oz, Inflation: CPI. Average asset allocation investor return is based on an analysis by Dalbar Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behaviour. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/13 to match Dalbar’s most recent analysis. Guide to the Markets — U.S. Data are as of 10/31/14.”
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