The average investor's portfolio lagged the performance of the S&P 500 by more than 2.1 percentage points through June 30, the mid-year Dalbar QAIB report (Quantitative Analysis of Investor Behavior) released today found.
The average return gap between the average equity fund investor and the U.S. equity market has widened considerably in the first half of 2021—doubling from last year, according to Dalbar, which has studied investor behavior for the past 27 years.
The study found that the average equity fund investor earned 13.14% in the first half of 2021, an underperformance of 211 basis points versus the S&P 500, which gained 15.25%.
Worse, the average asset allocation fund investor earned 8.31% in the first half of 2021, lagging the S&P 500 by 6.94%.
One major reason for the lagging performance is the average equity fund investor was also a net withdrawer of assets in the first half of 2021, withdrawing 1.5% of assets in the first six months of the year, Dalbar said.
The divestment has “come back to haunt the average equity fund investor,” the firm reported. “As a result of their divestment of equity assets, the average equity investors’ behavior in 2020 predictably caught up with them as the bull market raged on and continued to add another 15.25% in the first half of 2021. During the first six months of 2021, the equity investor gap ballooned by 100 basis points to 2.11%.”
At the end of 2020, “the average equity fund investor looked to be holding their own in a vacuum. However, one year or one moment in time is never the end of the story,” Dalbar Chief Marketing Officer Cory Clark said in a statement. "Unfortunately, the money left on the table so far in 2021 is invisible to the average equity fund Investor who has earned 13.14% in 2021 and is probably not second guessing their actions.”
Investors should be taking a critical look at their investment decisions during 2020 “to fully understand the latent implications that can arise months or years later when overreacting to market gyrations,” Clark said.
The average equity fund investor with a $100,000 equity portfolio withdrew $1,518 in the first six months of 2021, while gaining $12,943 in market appreciation. This left him or her with an ending balance of $111,425. In contrast, a hypothetical buy-and-hold strategy of $100,000 earning the return of the S&P 500 would have yielded an account balance at the end of June of $115,252, a gain of $15,252, the report said.
That means the average equity investor got beat by $3,827 by an S&P 500 buy and hold strategy, Dalbar found.
Selling during volatile markets can obviously drag down an investor’s short- and long-term investment performance in many circumstances.