Source: JP Morgan Guide to Markets 2Q|2014


Have a look at the chart above. It is from the quarterly chart book from JPM (which I have been referencing for years).

Average annual returns for individuals over the past 20 years? 2.3%. That fails to even keep up with inflation. REITs, commodities, equities and even bonds all wildly outperform the average retail investor.

The bottom half of this graphic shows what happens when investors are left to their own devices: They engage in emotional decision-making (AKA Fear & Greed), they “performance chase,” they fail to have any form of risk management in place, pay high fees, and exhibit an almost willful lack of discipline.


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Source: JP Morgan Guide to Markets 2Q|2014

Category: Investing, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

3 Responses to “Annualized Returns & the Average Investor”

  1. VennData says:

    But what about that macho feeling, having open ordera out there in the hottest stocks? Following Rick Santelli’s excellent advice? Reading the WSJ opinion page and acting fast?

  2. NMR says:

    Thus demonstrating the flaw at the center of the entire defined contribution pension system. Corporations dumped their pension responsibilities who in the main were and are no more equipped to manage them than chimpanzees. Meanwhile over in defined contribution land which has only survived in the public sector because the unions were strong enough to resist dismantling them and they’re managed by politicians too weak to say no we have plans overloaded with obligations and underfunded. And the Republicans want privatize SS and hand portfolio management to the totally unqualified.

  3. Let’s not forget that every trade made by the individual investor is a zero-sum game vis-a-vis whoever is on the other side of the trade.

    Note that stocks and bonds and everything else held by investors, in the aggregate, have gone up far more than the individual investor’s portfolio.

    For the individual investor to not track the market averages, someone else has to be scraping off fees, taking the smart side of the trades, and so on.

    Therefore, someone else has been making out like a bandit, capturing the returns left behind by the individual investors.

    Can we officially all just call individual investors “muppets” and “sheeple” now, or is that term still under copyright by the folks doing the puppeteering and fleecing of the mass market crowd?

    Also, it follows that the Federal Reserve’s policy of propping up the stock and bond markets with artificially cheap credit, is not benefiting the Main Street investors nearly as much as the folks who are fleecing them.

    P.S. I agree with NMR that, from the Main Street perspective the 401k defined-contribution system is fatally flawed (lousy investment choices and poor individual decisions), as is the prior defined-benefit system (underfunding), as is Social Security on anything other than a pay-as-you-go basis (nonexistent Trust Fund). Given that the average investor only keeps up with inflation anyway, maybe we should return to a zero-inflation monetary standard, so at least basic savings don’t lose value?