Investors can't stop kicking themselves

Investors have been their own worst enemies since the financial crisis.

Investors are notoriously bad market timers, and over the past five years, it has cost them a chance at actually beating the market.

Heading into the financial crisis, investors in the 10 biggest large-cap mutual funds had the best chance of outperforming the S&P 500 over the next five years, provided that they actually stayed invested the whole time. Of course, hindsight is 20/20, and none of them could have known it at the time, so it shouldn't come as a surprise that most didn't stick it out.

Over the five-year period ended Aug. 31, which includes the collapse of Lehman Brothers Holdings Inc. in 2008, the S&P 500's 42% free fall to the bear market's bottom and its subsequent 130% rally, five of the 10 biggest large-cap-stock funds posted better annualized returns than the benchmark.

Just 37% of all large-cap-stock funds can boast the same, according to Lipper Inc.

The average investor return, which takes into account buying and selling behavior, for all but one of the funds was much lower because investors were busy selling, according to Morningstar Inc.

For example, the average investor return for Fidelity Contrafund over the five-year period was just 6.16%, more than a full percentage point lower than its actual return, according to Morningstar.

The investor returns underscore that patience is one of the most important qualities that financial advisers must have when using actively managed funds.

Finding a good manager, with a repeatable process, that doesn't charge outrageous fees is only half the challenge when using actively managed mutual funds. Sticking with a manager through down years may even be the biggest challenge.

Source:  Jason Kephart, Investment News

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

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