The Shocking Historical Performance of Mutual Funds

Dalbar just recently released their 21st annual Quantitative Analysis Of Investor Behavior study which continues to show just how poorly investors perform relative to market benchmarks over time and the reasons for that underperformance.

It is important to note that it is impossible for an investor to consistently "beat" an index over long periods of time due to the impact of taxes, trading costs, and fees, over time. Furthermore, there are internal dynamics of an index that affect long term performance which do not apply to an actual portfolio. (For more on the reasons why benchmarking is a bad strategy click here and here.)

However, even the issues shown above do not fully account for the underperformance of investors over time. The key findings of the study show that:

• In 2014, the average equity mutual fund investor underperformed the S&P 500 by a wide margin of 8.19%. The broader market return was more than double the average equity mutual fund investor’s return. (13.69% vs. 5.50%).
• In 2014, the average fixed income mutual fund investor underperformed the Barclays Aggregate Bond Index by a margin of 4.81%. The broader bond market returned over five times that of the average fixed income mutual fund investor.(5.97% vs. 1.16%).
• Retention rates are
  • slightly higher than the previous year for equity funds and
  • increased by almost 6-months for fixed income funds after dropping by almost a year in 2013.
• Asset allocation fund retention rates also increased to 4.78 years, reaching their highest mark since plummeting to 3.86 years in 2008. Asset allocation funds continue to be held longer than equity funds (4.19 years) or fixed income funds (2.94 years).
• In 2014, the 20-year annualized S&P return was 9.85% while the 20-year annualized return for the average equity mutual fund investor was only 5.19%, a gap of 4.66%.
• In 8 out of 12 months, investors guessed right about the market direction the following month.Despite “guessing right” 67% of the time in 2014, the average mutual fund investor was not able to come close to beating the market based on the actual volume of buying and selling at the right times.

Read the Full Dablar Report

Result: Investors are flocking to alternative investments to save for retirement

Stephen Gandel from Money magazine, Nancy Altman from the Huffington Post and Fox Business News all agree that Americans need a new type of retirement savings. We need a retirement savings plan that can mitigate the risk of market volatility, decrease the tax burden during retirement while maintaining the investors flexibility to increase their earning potential.

Watch this free investigative report to see what investors are doing to protect and grow their retirement savings.