How to Save an EXTRA $500K
Here’s a slap for all of us little guys who aren’t institutional investors like banks, pensions, insurance companies, etc.
If you’ve been around the Club for a while, you have to have heard me use the terms “average investor,” “Joe Mainstreet” and “the little guy.”
A recent summary of the average investor’s behavior, returns and losses, as summarized in the 2018 Dalbar report, showed that if you’re going to be an investor, don’t be an average one.
No matter what period you look at, whether the market was up or down, according to Dalbar, the average investor has done horribly.
In good markets, Joe Mainstreet makes about half of what the market returns.
In down markets – last year, for example – while the S&P had a 4.4% loss, the average investor lost around 9.4%.
This was not something unique to 2018. You can go back 30 years, and the trend is almost identical.
Since 1988, the stock market has returned somewhere between 9% and 10%. The average investor has earned about 4.1%.
If you apply those numbers long term – 21 years is long term – if you’re over 50, maxing out on your 401(k) and working to age 70, here’s how the horrible returns the average guy is making can affect you…
If we assume a 9% annual return in 20 years, you could have put aside $1.2 million. But the average guy, at 4%, sits at $732,000.
That’s a huge difference – something in the area of a half million dollars.
If you consider all the people who have all their money sitting in money market funds, which pay virtually nothing, the outcome is catastrophic.
The bottom line is – and I’ve said it 100 times – the average investor is 180 degrees out of sync with the market. They are unable to decide when to get in or when to leave. And when they do decide, they’re consistently wrong.
The moral of the story: If you’re going to be an investor, don’t be an average one.
Investing is about discipline, market wisdom, fundamentals and, in some cases, a little luck. If you don’t have all of those things, follow the advice of someone who does. The Oxford Club has the best market strategists I’ve ever seen.