2008 - 'The year that wiped out wealth'

Equity, fixed income and asset allocation fund investors experienced average annual losses for all time periods except the longest (20-year) time frame, according to DALBAR's annual "Quantitative Analysis of Investor Behavior." And even those positive returns did not keep up with inflation.

Last year was the year that wiped out wealth, according to a statement issued by DALBAR. "The dramatic events that continue to plague our financial markets have provoked panic, which exacerbates the ongoing carnage," said Lou Harvey, president. "For 15 years, QAIB has shown that investor returns lag what performance reports and prospectuses would lead one to believe is achievable. While those returns are, in fact, theoretically achievable, the reality is that investors are not rational, and make buy and sell decisions at the worst possible moments."

Among the study's findings:

  • For the 20 years ended December 31, 2008, equity, fixed income and asset allocation fund investors had average annual returns of 1.87 percent, 0.77 percent and 1.67 percent, respectively. The inflation rate averaged 2.89 percent over that same time period.
  • Equity fund investors lost 41.6 percent last year, compared with 37.7 percent for the S&P 500 Index.
  • Bond fund investors lost 11.7 percent last year, versus a gain of 5.2 percent for the Barclays Aggregate Bond Index. This disparity is largely due to the underperformance of managed bond funds caused by mortgage-backed securities.
  • With an annual loss of 30 percent last year, asset allocation fund investors fared better than equity fund investors.

QAIB suggests that financial firms and advisors help mitigate the effects of investor behavior by:

  • Encouraging dollar cost averaging to ease back into the markets.
  • Helping investors stay calm during market turbulence through a strategy called "Purpose-Based Asset Management."
  • Providing a deeper evaluation of a potential investment's leverage exposure.
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