My oldest daughter is about to wrap up her first year of high school.
By the time she graduates, she’ll have dragged herself out of bed 200 days per year for four years and sat in a classroom for six hours.
My math tells me that over that time, she is going to receive 4,800 total hours of education.
I’ve looked at her curriculum.
Exactly zero of those 4,800 hours will be spent learning about the incredible wealth creator that is the stock market.
Instead, my daughter will learn complex math skills she’ll never use outside of a classroom.
She will be forced to memorize the names of countries and capitals all over the world that she will then forget immediately after she aces the geography test.
And she will learn nine different types of poetry that she has zero interest in.
She will learn lots of things in those 4,800 hours.
But not one second of that time will be spent on what the stock market is and how it can be used to generate wealth.
My child will get 4,800 hours of education, yet no guidance on the best possible tool she will have to accumulate wealth for retirement.
It is a terrible hole in our education system.
The results of this absence can be seen clearly in the performance of retail investors who find their way into the market.
The Bleak Performance of Retail Investors
In 2017, market research firm Dalbar completed a 30-year study of retail investor mutual fund performance for the period ending December 30, 2016. I find the results unbelievably depressing.
Dalbar found that over the short term, medium term and long term, the results were the same…
Retail investors massively underperformed the overall stock market.
The chart below captures the gruesome numbers.
The teal bars represent the S&P 500 return, and the shorter green bars represent the returns generated by the average retail mutual fund investor.
I find the 30-year underperformance especially heartbreaking.
While the S&P 500 averaged an annualized return of 10.16% over the 30-year period, the average retail fund investor averaged an annualized 3.98%.
The amount of wealth the average retail investor missed out on is nauseating.
A $100,000 investment in the S&P 500 at the start of this 30-year period would have turned into $1,822,711.
Meanwhile, the average retail fund investor who invested $100,000 and earned an annualized 3.98% would have found themselves with $322,473 at the end of 30 years.
That $1.5 million difference is obviously a life-changing amount of money that was left on the table by retail investors.
For most people, it would have meant decades of additional work before retirement.
My Kids Will Not Suffer This Fate
There are many great quotes attributed to Warren Buffett that provide more investing wisdom than entire textbooks.
One of my absolute favorites is this: “The stock market is a device for transferring money from the impatient to the patient.”
Dalbar concluded that the average retail fund investor underperformed due to impatience.
Or as I think of it, a lack of discipline.
But I’m not casting any judgment here. All I’m saying is that it’s a simple fact that great investors are disciplined in a certain kind of patience.
To succeed in the market, all that a retail investor had to do over those 30 years was invest their money and then have the composure to do nothing, barring the worst circumstances.
Instead, the average investor did not have the discipline to stay invested for the long term.
The folly of the average investor was succumbing to those two basic human emotions, fear and greed.
The average investor is greedy at the wrong time and piles money into stocks at market tops.
Then, when the market tanks, the average investor is fearful and exits the market at the bottom.
This lack of discipline left millions and millions of Americans with a fraction of the wealth that they should have gained over this 30-year period.
How could this have been avoided?
The easy answer is that we could teach our kids about the stock market in high school.
Imagine how easy it would be to spend three minutes every day showing kids the 100-year chart of the S&P 500 that goes up, up and up some more.
You can’t see that chart every day and not remember it.
Generating wealth in the stock market is so incredibly easy.
All you have to do is build a diversified portfolio and have the discipline to hold for the long term.
My kids are going to get this simple lesson about emotional self-discipline a thousand times in the coming years.
It will literally make them millions of dollars over their lifetimes.