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“Dead” investors often beat the living – at least when it comes to investment returns.
A “dead” investor refers to an inactive dealer who occupies a “buy and holding strategy”. This often leads to better returns than an active trade, which generally causes higher costs and taxes and is due to impulsive, emotional decision -making, experts said.
It turns out that the average investor generally achieves better results than a more active role in its own portfolio, according to investment experts.
The “biggest threat” for investigating events is human behavior, not the policy of the government or the company, said Brad Klonz, certified financial planner and financial psychologist.
“It sells them [investments] If you are in panic state and shop conversely when you are all excited, “said Klonz, the managing director of YMW consultants in Boulder, Colorado, and member of the CNBC consulting council.
“We are our worst enemy, and therefore dead investors surpass the living,” he said.
Why return is neglected
Dead investors continue to “own” their shares over heights and depths.
Historically, the shares have always recovered after a downturn – and have reached new heights every time, said Klonz.
Data show how harmful bad habits can be in relation to the buy-and-hold investor.
According to Dalbar, who carries out an annual investor behavior study, the return of the average stock investor in 2023 was around the S&P 500 share index in 2023. (The average investor earned around 21%, during the S&P 500 26%, said Dalbar.)
The topic also takes place over longer time horizons.
According to Morningstar, the average investor of the US investment fund and the stock market fund earned 6.3% per year from 2014 to 2023. However, the average fund achieved an overall return of 7.3%during this period.
This gap is “important”, wrote Jeffrey Ptak, Managing Director for Morningstar Research Services.
This means that investors have lost about 15% of the returns that have achieved their means generated over 10 years, he wrote. This gap agrees with the returns from previous periods, he said.
“If you buy high and sell deep, your return will remain the return return,” wrote Ptak. “So your return was neglected.”
Wired to run with the herd
Emotional impulses that can buy during the downturn or in certain categories if you have a highlight of the highlight (think of Meme shares, crypto or gold) when you consider human development, experts said.
“We are wired to actually run with the herd,” said Klonz. “Our approach to investing is actually psychologically the absolutely wrong way to invest, but we are wired to do it that way.”
Market movements can also trigger a combat or flight reaction, said Barry Ritholtz, chairman and Chief Investment Officer from Ritholtz Wealth Management.
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“We developed to survive and adapt the savannah, and our intuition … want us to make an immediate emotional reaction,” said Ritholtz. “This immediate reaction never has a good result on the financial markets.”
These behavioral defects can lead to greater losses, say experts.
Consider an investment of $ 10,000 in the S&P 500 from 2005 to 2024.
According to JP Morgan Asset Management, a buy-and-hold investor would have achieved almost 72,000 USD for an average annual return of 10.4% at the end of this 20 years. In the meantime, the 10 best market days at 33,000 US dollars would have more than halved during this period. If an investor missed the best 20 days, he would only have 20,000 US dollars.
Buy-and-hold does not mean “doing nothing”
Of course, investors shouldn't do anything.
Financial advisors often recommend basic steps such as checking the asset assignment (to ensure that they match the investment horizon and the goals) and to maintain this mixture of shares and bonds.
There are funds that can automate these tasks for investors, e.g. B. balanced funds and target date funds.
These “all-in-one” funds are widespread and take care of “secular” tasks such as rebalancing, wrote Ptak. They require fewer transactions from the investor – and the restriction of transactions is a general key to success, he said.
“Less is more,” Ptak wrote.
(Experts offer caution: Make sure that such funds are completed on non -cancellation accounts for tax reasons.)
According to PTAK, routine also helps. This means that saving and investing is automated as far as possible, he wrote. The contribution to a 401 (K) plan is a good example, he said, since the employees do every salary billing without thinking about it.