Investors are Still Their Own Worst Enemies: Dalbar Study

Since 1984, independent investment research firm Dalbar Inc. has published its annual Quantitative Analysis of Investor Behavior report, or QAIB.

This research series studies investor performance in mutual funds. Its goal is to shed light on how investors can improve portfolio performances by managing behaviors that cause them to act imprudently.

If you've been following Dalbar's research over the years, you're well aware that one consistent theme keeps cropping up. Namely, the set of longer-term data analyzed in these QAIB reports clearly shows that people are more often than not their own worst enemies when it comes to investing.

Often succumbing to short-term strategies such as market timing or performance chasing, many investors show a lack of knowledge and/or ability to exercise the necessary discipline to capture the benefits markets can provide over longer time horizons. In short, they too frequently wind up reacting to market maturations and lowering their longer-term returns. 

In the 2024 edition of the study, Dalbar also concludes something that we often tell our prospects and clients: Investment results are more dependent on investor behavior than on fund performance.

The 2024 QAIB reaffirms past research findings that fund investors who remained patient and didn't focus on short-term market gyrations were significantly more successful than those who let their emotions override a longer-term strategy to build wealth.  

Another key caveat suggested from such a study is that investing is a journey best taken with the help of others. This is why IFC finds it so important to make available to you different educational tools and resources to learn more about investing. These resources, which include our Investing for Catholics brochure ("A Clear Path for Catholic Investors"), are designed to support your efforts to achieve long-term financial success. 

Investor Performance

The bar chart below shows the difference in performance as well as the growth of $100,000 between the average equity investor and the S&P 500 Index for the past 30 years (through 2023). It also compares the average annualized return of such an initial investment to the rate of inflation over that same period.

As you can see, the average equity fund investor's efforts to outguess markets has resulted in performance during this extended period that falls well-behind the blue chip S&P 500 Index, often referred to as a bellwether of large company stocks in the U.S.  

As true fiduciaries to our clients, this behavioral finance study serves as another piece of evidence that IFC's greatest value is keeping them disciplined and committed to their long-term financial objectives. 

Along these lines, we invite plan sponsors and investors to start a conversation with Mary Brunson about how they can step back and take a strategic view of investing in global financial markets. Mary is the co-founder and vice president of Investing for Catholics. She is also an Accredited Investment Fiduciary (AIF). Feel free to email mary@ifa.com, or simply call: (888) 815-5025. 

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This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful.  Investing involves risks, including possible loss of principal. Performance may contain both live and back-tested data. Data is provided for illustrative purposes only, it does not represent actual performance of any client portfolio or account and it should not be interpreted as an indication of such performance. IFA Index Portfolios are recommended based on time horizon and risk tolerance.  For more information about Index Fund Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/ or visit www.ifa.com.

Accredited Investment Fiduciary™ (AIF) certification is a designation received upon passing coursework and exam administered by the Center for Fiduciary Studies, LLC (a Fi360 company).