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Mind the (large) Gap!
In London in the subways, they have signs "Mind the Gap!" referring to the space between the train platform and the train itself.
The behavior gap as reported by Dalbar is the difference between the investment return that individual investors could have achieved vs. what they did achieve. The numbers are shockingly bad.
Dalbar Report
S&P 500: +9.14% Average Equity Mut. Fund Investor: +3.27% Behavior Gap: 5.87%
With the SP500 return easily available with a index fund - why is the gap present and so large? We're Humans It really boils down to the human condition - our behavior. We are swayed by emotions of fear, euphoria, impatience, etc. Behavior Gap & Carl Richards Carl Richards claims to have coined the term "Behavior Gap and has created some interesting "sketches" to help people understand. Steve Jobs Would Like This
Steve said there is elegance in simplicity so he would appreciate this simplistic advice: Just avoid these two mistakes to grow wealth successfully.
1) Lack of Discipline (stay in market, don't chase fads, don't time the market)
2) Lack of Diversification (diversification mitigates risks that are not necessary risks for long term growth. You need diversification among asset classes, regions etc, and within asset classes, regions, etc.)
Behavior Gap in 401(k) Plans
Many 401(k) plans today include a Stable Value Fund. These funds are terrible because they lead participants directly to the Behavior Gap. Tell your 401(k) plan sponsor to get rid of those funds so that you're not tempted to use them!
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What to Do Next
We regularly analyze folk's current investment strategy with nothing expected in return. We look at: - Overall Performance (vs. benchmarks & our model portfolios)
- Portfolio Design
- Diversification
- Fees & Expenses
Give us a call. You are your own fiduciary - and getting an objective review of how your precious assets are being invested is a wise move to protect yourself & your loved ones. 760-804-0910 |
